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The financial sector is leveraging blockchain technology to increase security and efficiency and reduce complexity
GENEVA, Dec. 13, 2022 /PRNewswire/ — For the first time, key players in the Swiss financial industry have successfully developed and tested a novel settlement mechanism for tokenized investment products on a public blockchain testnet infrastructure. A smart contract, developed by the Capital Markets and Technology Association (CMTA), allows you to streamline processes, reduce complexity, increase security, and eliminate counterparty risks from trading. The CMTA proof of concept marks a milestone for the Swiss financial industry.
The proof of concept involves:
– the issuance of tokenized investment products registered on an Ethereum proof blockchain,
– trading these products in Swiss francs on a regulated Swiss stock exchange, and
– Settlement of operations through a smart contract developed by CMTA.
These three different operations -issuance, negotiation and settlement- take place in a matter of hours, when in a traditional financial environment they take days to develop.
“We are very proud to have developed this innovative mechanism with numerous partners from the financial and technology sectors,” said Jacques Iffland, President of CMTA. “It will allow the industry to increase efficiencies, simplify cross-border settlement and improve the quality of service. And customers will benefit from the increased efficiencies.”
Vontobel and Pictet each issued an actively managed equity certificate representing a basket of shares, while Credit Suisse issued a structured note, which were associated with digital tokens registered on an Ethereum proof blockchain, a process commonly referred to as “tokenization”. These securities were then traded on the platform of BX Swiss, a Swiss stock exchange regulated by FINMA. Trades were settled bilaterally on the blockchain. For this, the participants used a chain mechanism that guarantees the obligations of the parties. Settlement in fiat currency (Swiss franc) was made possible by an app called DLT2Pay, a product of targens, which connects the blockchain with Swiss Interbank Clearing (SIC), the Bank’s real-time gross settlement (RTGS) payments system. Swiss national. The proof of concept leveraged the standard token format and the CMTA (CMTAT) smart contract, as well as another smart contract that replicates the delivery-versus-payment functionality of traditional settlement systems. The creation, security aspects and technical operation of the smart contracts were carried out under the direction of Taurus, whose technology was used to issue and manage the structured products throughout their entire life cycle.
The proof of concept was developed and carried out under the auspices of the CMTA, with the support of representatives from BX Swiss, Credit Suisse, Homburger, Lenz
The proof of concept lays the foundation for an alternative Swiss post-trade infrastructure that works without central parties (central counterparty and central securities depository) and enables participating banks to benefit from cost advantages along the entire transaction value chain securities (issuance, settlement and custody).
Daniel Gorrera, Head of Digital Assets at Credit Suisse, said: “The transactions made today clearly establish that products tokenized on a public blockchain can be traded on regulated trading platforms and that settlement of transactions on tokenized products can be done in fiat currencies without create no counterparty risk. The success of the proof of concept is a crucial first step to unlocking the benefits of tokenization in the future.”
Steve Blanchet, Head of Group Strategy and Technology Innovation at Pictet said: “Tokenization is a key strategic element for the future of asset management. It enables issuers to streamline the processes that govern the creation of investment products in a more currently not possible with traditional infrastructures, and drastically reduce time to market With the solutions we tested in the proof of concept, processes that currently take days can be reduced to a few hours and, over time, to minutes or less.”
Anna-Naomi Bandi-Lang, Structuring – Credit Solutions at UBS Investment Bank said: “Tokenization has many use cases, but for it to become an established feature of modern financial markets, the ability to trade tokenized products on major currencies and through regulated trading venues. CMTA’s proof of concept demonstrates that there is a path to achieve this goal.”
Marco Hegglin, Head of Treasury and Structured Solutions Office at Vontobel, said: “This proof of concept is only a first step on the path towards defining a new standard for structured products in the form of a smart contract. Structured products are not they are just innovative products, they are also predestined for cutting-edge technology.With a fully automated smart contract covering the entire life cycle, the possibilities that can be expressed in a pure code language are almost limitless, and blockchain technology can help design new generations of financial products.”
Matthias Müller, Head of Markets at BX Swiss, said: “This proof of concept, the first of its kind, demonstrated that trades made on an exchange can be settled on a public blockchain directly between participants. secure a transaction by transferring tokens or cash to the exchange prior to the trade This is a significant advantage in terms of speed, cost and risk management The smart contract used for settlement eliminates counterparty risk that would exist if the cash party and the asset portion of the transactions will be completed independently of each other. The new regulatory regime for DLT-based trading platforms will allow BX Swiss to take full advantage of these developments.”
Jean-Philippe Aumasson, Co-Founder of Taurus SA and Chairman of CMTA’s Technology Committee, said: “We are delighted to see a consensus building around the use of open standards for DLT-based market infrastructures and see that CMTA smart contracts are being recognized as trustworthy technology in this regard The use of collaboratively developed open source smart contracts reduces development and due diligence costs for participants and contributes to the trustworthiness and efficiency of the Swiss ecosystem of financial technology.”
Samuel Bisig, Director of Business and Product Development at targens GmbH in Stuttgart, said: “targens’ DLT2Pay solution provides the missing link between a DLT/blockchain and a payment transaction protocol (in this case: clearing systems). central banks) for cash settlement of securities transactions.As long as central bank digital currencies (CBDCs) are not available, such a “trigger solution” is key if digital assets are to be traded other than in private cryptocurrencies.”
More information about the proof of concept (document, video, animated graphics): https://cmta.ch/news-articles/trading-and-settlement-in-digitial-securities
For more information, contact:
Pascal Ihle, Partnerfurrerhugi.agTel.: 41 44 251 01 43E-Mail: pascal.ihle@furrerhugi.ch
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