The Boerse Stuttgart Group, the second-largest exchange in Germany, has successfully completed blockchain tests conducted as part of the European Central Bank (ECB) initiative. The exchange piloted the settlement of exchange transactions involving blockchain-based securities against central bank money, with various partner banks such as Commerzbank, Deutsche Bank, and others participating as trading and settlement participants. The new settlement solution for tokenized securities proved to be highly efficient, reducing settlement times from two days to a few minutes, resulting in cost savings for investors and financial institutions. The tests involved a variety of tokenized securities, including bonds, funds, and stocks, showcasing the versatility of the technology.
The successful completion of the ECB blockchain tests marks a significant step forward for the digitalization of the European capital market, according to Matthias Voelkel, CEO of the Boerse Stuttgart Group. The exchange’s Swiss-based tokenized securities exchange, BX Digital, set to launch in 2024, will utilize the exchange’s blockchain-based settlement solution. Unlike previous ECB tests, the Boerse Stuttgart Group conducted a comprehensive evaluation of their solution, testing it under various scenarios to ensure its reliability. Key participants like the broker EUWAX AG and the crypto custodian Boerse Stuttgart Digital Custody were involved in the testing process, emphasizing the thoroughness of the assessment.
While Germany has supportive laws for the issuance of tokenized securities and remains active in the ECB’s DLT settlement trials, trading and settlement activities are primarily governed by the European Union’s DLT Pilot Regime. This regulatory framework, agreed upon in May 2022 and applied in May 2023, aims to provide a legal framework for trading and settlement of transactions in crypto assets that qualify as financial instruments under MiFID II. Verena Ross, Executive Director of the European Union’s Securities and Markets Authority (ESMA), pointed out challenges hindering the adoption of the DLT Pilot Regime in a letter to EU regulators in April 2024, including limited availability of cash settlement providers, custody service uncertainties, interoperability issues between DLT and traditional systems, investor protection concerns, and restrictions on tradable financial instruments.
In response to the challenges highlighted by Verena Ross, Mairead McGuinness, the European Commissioner for Financial Services, stressed the importance of the DLT regime and acknowledged the growing interest from the financial industry. The Commission is committed to addressing these challenges and has clarified that there is no fixed end date for the pilot regime, showing a willingness to support the development and adoption of blockchain technology in trading and settlement activities. The Boerse Stuttgart Group’s successful completion of the ECB blockchain tests demonstrates the tangible benefits of utilizing blockchain technology in the settlement of securities transactions, leading to increased efficiency, reduced costs, and paving the way for digitalization of capital markets in the EU.
Overall, the blockchain tests conducted by the Boerse Stuttgart Group in collaboration with the ECB and partner banks have showcased the potential of blockchain technology in revolutionizing the settlement processes for tokenized securities. The successful completion of these tests signifies significant progress towards the digitalization of the European capital market and sets a precedent for other exchanges and financial institutions to adopt similar blockchain-based solutions. Despite challenges faced by the DLT Pilot Regime in the EU, there is a clear commitment from regulators and industry stakeholders to overcome these hurdles and create a conducive environment for safe experimentation and adoption of blockchain technology in trading and settlement activities. As blockchain technology continues to evolve and gain traction in the financial sector, the Boerse Stuttgart Group’s innovative approach and successful testing highlight the transformative power of blockchain in the future of securities trading and settlement.
