Three Swiss banks, Credit Suisse, Pictet and Vontobel, have successfully tested a new proof of concept settlement mechanism for issuing, trading, and settling tokenized investment assets on a public blockchain infrastructure.
What is the Proof of Concept About?
The proof of concept, which is a consensus mechanism, included the issuance of tokenized investment assets recorded on the Ethereum test blockchain and trading these tokenized products using Swiss francs on a regulated Swiss securities exchange platform, and the settlement of trades via a smart contract built by the Capital Markets and Technology Association (CMTA). These three unique operations (issuance, trading, and settlements) occur within hours, unlike in a traditional financial environment, which usually takes days to unfold.
Pictet and Vontobel issued an actively managed equity certificate depicting a basket of equities. At the same time, Credit Suisse supplied a structured note connected with virtual tokens registered on an Ethereum test blockchain in a process typically known as “tokenization.” The securities were later traded on BX Swiss, a FINMA-regulated Swiss securities exchange platform. Afterward, the trades were bilaterally settled on the blockchain. The settlement involved using an on-chain mechanism that protects the parties’ obligations. Furthermore, the settlement, which was made in Swiss francs, was possible due to the presence of an application called DLT2Pay, a product of targens, that links the blockchain with the Swiss Interbank Clearing (SIC), the real-time gross settlement (RTGS) payment mechanism of the Swiss National Bank.
The proof-of-concept mechanism utilized the CMTA’s smart contract and standard token format. The development, and technical workings of the smarts and security aspects, were implemented under the supervision of Taurus, whose technology was leveraged to issue and manage the structured products across their whole lifecycle. The proof-of-concept mechanism also establishes the basis for alternative Swiss post-trade infrastructure that works without the need for central parties (central counterparty and central securities depository). It also allows participating banks to enjoy cost benefits throughout the value chain of securities transactions involving issuance, settlement, and custody.
The consensus mechanism was built and implemented under the auspices of the CMTA, with assistance from Credit Suisse, Homburger, Pictet, METACO, UBS, Vontobel, and BX Swiss.
How CMTA’s Smart Contract is Revolutionizing The Swiss Financial Industry
The smart contract created by CMTA has been hailed for providing streamlined processes, eliminating counterparty risks from trades, boosting security, and lowering complexity. The Capital Markets and Technology Association (CMTA) is a not-for-profit organization founded in 2018 by Swissquote, Temenos, Lenz, and Staehelin and headquartered in Geneva, Switzerland. The organization connects professionals from the financial, legal, and technological sectors to promote the use of advanced technologies in capital markets. It also offers a platform for building open industry standards around issuing, trading, and distributing securities in the form of virtual tokens using distributed ledger technologies. With over 40 members from the Swiss and international financial industry, the CMTA’s latest proof of concept mechanism heralds a new milestone for the Swiss financial sector.
In a statement released on their official website, the Chairman of the CMTA, Jacques Iffland, noted that this new concept would help boost efficiency and service quality and simplify cross-border settlements. He also said that clients would also enjoy its many efficiency gains. According to Daniel Gorrera, Head of Digital Assets at Credit Suisse, products tokenized on a public blockchain can be swapped on regulated trading exchanges. He also stated that the successful execution of the proof-of-concept mechanism is a vital first step in unlocking the future advantages of tokenization. The Chief of Staff Structured Solutions and Treasury at Vontobel, Marco Hegglin, stated that proof-of-concept heralds a new standard for structured assets in the form of smart contracts.
The proof of concept provides an alternative financial infrastructure that is decentralized and cost and time effective as banks and other parties can perform transactions which would normally take days to complete and without the supervision of central parties.
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