GENEVA, April 1 /PRNewswire/ – Key players in the Swiss financial industry have developed and successfully tested for the first time a new settlement mechanism for tokenized investment products on a public testnet blockchain infrastructure. The one developed by the Capital Markets and Technology Association (CMTA). smart contract optimizes processes, reduces complexity, increases security and eliminates counterparty risk in transactions. From proof of concept the CMTA is an important step for the Swiss financial centre.
- Credit Suisse, Pictet and Vontobel carried out a feasibility study (proof of concept) conducted, which issued tokenized investment products listed on a public blockchain and traded on BX Swiss, a Swiss exchange
- The three events of proof of concept – Issuance, trading and settlement – happened in hours, whereas in a traditional financial environment it takes days
- From default token of the Capital Markets and Technology Association (CMTA) and Taurus tokenization technology were used to issue the tokenized investment products
- The tokenized securities are traded in fiduciary currency – the Swiss franc – via a smart contract and the targens payment bridge DLT2Pay
- The financial sector benefits from blockchain technology to increase security and efficiency and reduce complexity
From proof of concept contains:
- the issuance of tokenized investment products listed on an Ethereum test blockchain,
- trade such products in Swiss francs on a regulated Swiss stock exchange, and
- the settlement of transactions via a system developed by the CMTA smart contract.
These three separate operations – issuance, trading and settlement – took place in a matter of hours, whereas in a traditional financial environment, they take several days.
“We are very proud to have developed this innovative mechanism with many partners from the financial and technology industries.” says Jacques Iffland, president of the CMTA. “It will enable the sector to increase its efficiency, simplify cross-border processing and improve the quality of services. And customers will benefit from the increased efficiency.”
Vontobel and Pictet each issued an actively managed share certificate representing a basket of shares and Credit Suisse issued a structured bond. These effects were tied to digital tokens listed on an Ethereum Test blockchain; a process commonly referred to as “tokenization”. The securities were then traded on the BX Swiss platform, a Swiss stock exchange regulated by FINMA. The transactions were processed bilaterally via the blockchain. For this purpose, the participants used a on chain Mechanism that secures the obligations of the parties. Settlement in fiat currency (Swiss francs) was made possible by an app called DLT2Pay, a product from targens that connects the blockchain to Swiss Interbank Clearing (SIC), the National Bank’s real-time gross settlement (RTGS) system. Swiss. From proof of concept used the standard token format and the smart contract (CMTAT) of the CMTA, as well as another smart contract, which replicates the delivery and payment function of conventional settlement systems. The creation, security aspects and technical operation of the smart contracts were led by Taurus, whose technology was used to issue and manage the structured products throughout their life cycle.
From proof of concept was developed and implemented under the leadership of the CMTA, with support from representatives of BX Swiss, Credit Suisse, Homburger, Lenz & Staehelin, METACO, Pictet, targens, Taurus, UBS and Vontobel.
From proof of concept lays the foundation for an alternative Swiss post-trade infrastructure that operates without central parties (central counterparty and central depository) and allows participating banks to benefit from cost advantages along the value chain of a transaction securities (issue, settlement and custody).
Daniel Gorrera, Head of Digital Assets at Credit Suisse, said: “Today’s transactions clearly demonstrate that tokenized products can be traded on a public blockchain on regulated trading platforms and that transactions involving tokenized products can be settled in fiat currencies without incurring counterparty risk. Successful proof of concept is an important first step to unlocking the benefits of tokenization in the future.”
Steve Blanchet, Head of Group Tech Strategy and Innovation at Pictet, said: “Tokenization is a key strategic element for the future of wealth management. It allows issuers to streamline investment product creation processes in a way that is currently not possible with traditional infrastructures, dramatically reducing time to market. With the solutions we tested as part of the proof of concept, processes that currently take days can be reduced to hours and ultimately minutes or less..”
Ann-Naomi Bandi-Lang, Structuring – Credit Solutions at UBS Investment Bank said: “Tokenization has many use cases, but for it to take hold in modern financial markets, the ability to trade tokenized products in major currencies and through regulated trading platforms is essential. CMTA proof of concept shows there is a way to achieve this goal.”
Marco Hegglin, Chief of Staff Structured Solutions & Treasury at Vontobel, said: “This proof of concept is only a first step towards creating a new standard for structured products in the form of a smart contract. Structured products are not only innovative products, they are also predestined for the latest technologies. With a fully automated smart contract spanning the entire lifecycle, the possibilities that can be expressed in pure code language are nearly limitless, and blockchain technology can aid in the development of 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 transactions carried out on the exchange can be settled directly between participants on a public blockchain. It is no longer necessary for parties to secure a transaction by transferring tokens or money to the exchange before trading. This is a significant advantage in terms of speed, cost and risk management. The smart contract used for settlement eliminates the counterparty risk that would exist if the cash side and the asset side of transactions were settled independently. 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 the CMTA Technology Committee, said: “We are pleased that a consensus is emerging on the use of open standards for DLT-based market infrastructures and that CMTA smart contracts are recognized as a reliable 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 reliability and efficiency of the Swiss fintech ecosystem.”
Samuel Bisig, Head of Business and Product Development at targens GmbH in Stuttgart, said: “The DLT2Pay solution from targens represents the missing link between a DLT/blockchain and a payment transaction protocol (here: central bank clearing systems) for the cash settlement of securities transactions. Until there are central bank digital currencies (CBDCs), such a “trigger solution” is key if digital assets are to be traded differently than private cryptocurrencies..”
More information on the proof of concept (paper, video, animated graphics):
For more information :
Pascal Ihle, partner
Mobile: +41 76 577 17 40
About the Capital Markets and Technology Association
The Capital Markets and Technology Association (CMTA) is a non-profit organization based in Geneva, Switzerland, which brings together professionals from the fields of finance, technology and law to promote the use of new technologies in the markets capital. The association provides a platform to create open industry standards for the issuance, distribution and trading of securities in the form of digital tokens using distributed ledger technologies. It was founded in 2018 by Lenz & Staehelin, Swissquote and Temenos with the support of EPFL and today has more than 40 members from the Swiss and international financial sector.
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