Germany’s Central Bank Built a Blockchain Prototype Focused on Securities Trading

Germany’s Central Bank Bundesbank

Germany’s Central Bank Bundesbank

Germany’s Central Bank Bundesbank Built a Blockchain Prototype Focused on Securities Trading.

The influential and powerful Germany’s central bank has built a new blockchain prototype focused on securities trading. Trading securities is one of the top trading activities and constitutes a category of securities that includes both debt and equity securities, and which an entity intends to sell in the short term for a profit that it expects to generate from increases in the price of the securities. Introducing blockchain to these kind of operations can disrupt and open a huge new development for the capital markets at large.

This project, a joint venture between the Deutsche Bundesbank and Deutsche Börse jointly presents a functional prototype for the blockchain technology-based settlement of securities. The innovative and disruptive prototype is designed to provide the technical functionality for the settlement of securities in delivery-versus-payment mode for centrally -issued digital coins , as well as the pure transfer of either digital coins or digital securities alone. In addition, it is capable of settling basic corporate actions such as coupon payments on securities and the redemption of maturing securities.

The Deutsche Bundesbank and Deutsche Börse plan to develop the prototype further over the next few months, and this product will then be used to analyse the technical performance and the scalability of this kind of blockchain- based application.

The Bundesbank that developed the prototype in partnership with also influential exchange operator Deutsche Börse, are working in order to further testing between the two sides planned over the next few months. The German central bank said in a statement that the project constitutes the first joint initiative with Börse, describing it as “purely a conceptual study”.

The prototype is said to enable the transfer of both electronic securities as well as “digital coins”, as well as functions for coupon payments and the redemption of mature securities, using code from the Hyperledger project as a basis. Deutsche Börse is a member of that initiative, and has been exploring its own applications since early 2015.

Germany’s Central Bank Bundesbank

Germany’s Central Bank Bundesbank

According to the Bundesbank, the project is aimed at providing a basis for further exploring the use of the tech in the securities trading space.

The project comprehends a prototype that has the following features:

• Blockchain -based payments and securities transfers as well as the settlement of securities transactions against both instant and delayed payment;
• Maintenance of confidentiality/access rights in blockchain-based concepts on the basis of a flexible and adaptable rights framework;
• General observance of existing regulatory requirements
• Identification of potential to simplify reconciliation processes and
regulatory reporting;
• Implementation of a concept based on a blockchain from the Hyperledger
project.

Bundesbank executive board member Carl-Ludwig Thiele said in a statement:

“With the blockchain prototype, the Deutsche Bundesbank and Deutsche Börse want to work together to find out whether this technology can be used for financial transactions, and if so, how this can be achieved. The Deutsche Bundesbank hopes that this prototype will contribute to a better practical understanding of blockchain technology in order to assess its potential.”

The joint work unveiling comes on the heels of a four-day conference hosted by the Bundesbank in Frankfurt. The event brought together regulators like the European Central Bank and organisations such as R3 and Digital Asset Holdings.