Credit Suisse Tests Securities Tokenization on Public Blockchain – Ledger Insights
A group of Swiss banks, Credit Suisse, Pictet and Vontobel, have issued tokenized investment products on the Ethereum blockchain testnet and settled fiat currency transactions. The tokenized securities were traded on BX Swiss, the FINMA-regulated Swiss stock exchange and subsidiary of Börse Stuttgart.
The benefits of using blockchain include efficiency resulting in lower costs. Because settlement is always faster or instant, counterparty risk is reduced. And in this case, the added nuance is the use of a public blockchain that could potentially enable greater liquidity due to ease of access.
One of the promises of blockchain is to cut out the middleman. However, regulations in many countries do not allow this for securities. Neither a central counterparty (CCP) nor a central securities depository (CSD) was involved in these transactions.
“This proof of concept showed that trades executed on exchanges can be settled on a public blockchain directly between participants,” said Matthias Müller, Head of Marketing at BX Swiss. “It is no longer necessary for the parties to secure a transaction by transferring tokens or cash to the exchange before trading. This is a significant advantage in terms of speed, cost and risk management.”
He added, “The new regulatory regime for DLT-based trading platforms will allow BX Swiss to take full advantage of these developments.”
BX Swiss is one of only three FINMA-authorized Swiss trading venues, the other two being SIX and SIX Digital Exchange (SDX).
Digital asset firm Taurus provided the technology for the issuance of the tokenized structured products, which included tokens representing baskets of shares issued by private banks Pictet and Vontobel, and a structured note from Credit Suisse. The Capital Markets and Technology Association (CMTA) orchestrated the lawsuit.
“The transactions executed today clearly demonstrate that products tokenized on a public blockchain can be traded on regulated trading platforms and that settlement of transactions on tokenized products can be performed in fiat currencies without creating any counterparty risk,” said Daniel Gorrera, Head of Digital Assets at Credit Suisse.
A year ago, Credit Suisse was involved in helping a private company tokenize its equity on Ethereum using Taurus technology.
For the latest transactions, CMTA developed a smart contract used for settlement to eliminate counterparty risk. This used a payment solution, DLT2Pay, developed by targens which connects the blockchain to SIC, the Swiss real-time gross settlement (RTGS) system.
“With a fully automated smart contract covering the entire lifecycle, the possibilities that can be expressed in pure code language are almost limitless, and blockchain technology can help design new generations of financial products,” said Marco Hegglin, Chief of Staff Structured Solutions & Treasury at Vontobel .
Other organizations involved in the transaction include UBS and custody technology firm Metaco.
UBS recently issued a DLT-based bond on the SIX Digital Exchange (SDX). In that case, the securities are held in a CSD and, in a new twist, the investor can choose whether to keep it in the original SDX CSD or the more conventional SIX CSD. R3’s Corda enterprise blockchain underpins SDX.
Meanwhile, others have issued securities on the Ethereum blockchain instead of the testnet. These include the European Investment Bank (EIB), Societe Generale and Santander.
