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Distributed ledger

Distributed ledger technology and its regulatory implications

Blockchain technology, also called distributed ledger technology (DLT), facilitates a number of innovations in the financial services sector. A distributed ledger is a public, decentralised account book originally developed as the technological foundation of the virtual currency bitcoin. In digital payment and business transactions, DLT can be used to record transactions between users without the need for a mandatory central authority to legitimise individual transactions.

The financial sector quickly realised the large number of possible applications and DLT’s potential to increase efficiency. A number of initiatives are currently exploring and specifying blockchain’s broad scope of application.

Deutsche Börse has been making substantial investments in the development and introduction of state-of-the-art services using DLT. Among Deutsche Börse’s most recent activities in this area are the development of a blockchain solution for cross-border securities transfer in cooperation with the Liquidity Alliance as well as the development of a functioning prototype for the blockchain-based settlement of securities transactions in cooperation with Deutsche Bundesbank, Germany’s central bank. In addition, Deutsche Börse is a premium member of the Linux Foundation’s Hyperledger project.

A number of challenges but “too early for regulatory measures regarding blockchain”

In a recent study, the European Securities and Markets Authority (ESMA) indicated that blockchain bears the potential of bringing a number of benefits to the financial market, such as efficient post-trading processes, improved reporting and data management as well as cost reductions.

Regulators have, however, also pointed to the fact that there are a “number of challenges” to be dealt with and that, in spite of the many promising tests thus far conducted, blockchain is still at a very early stage at which it is still “unclear whether the technology will be able to meet all of these challenges”. Supporters and developers of the new technology must adhere to existing regulation.

The European Central Bank (ECB) emphasises: “The new technologies will have a profound effect on the financial markets. It is essential to examine, analyse and test them to ensure that future market infrastructures are not only efficient and innovative, but also safe and reliable.”

Distributed ledger: the highlighted parts of the value chain are affected

Strategic partnership between Deutsche Börse, Swisscom and Sygnum

Trading infrastructure

The aim of this cooperation is to jointly build out and grow a trusted and regulatory compliant financial market infrastructure for digital assets.

Securities settlement via distributed ledger technology

Commerzbank and Deutsche Börse have successfully used DLT to execute a legally binding settlement of a repo transaction.