First trades executed on DCP blockchain initiative
16 March 2021
DekaBank, Hauck & Aufhäuser and DekaInvest settled €300 million worth of securities lending versus collateral trades on the Digital Collateral Protocol, a DLT-based protocol implemented by Comyno via its C-One securities finance platform. Digital Assets will be next in line
Image: Comyno
In late 2019, DekaBank and Comyno started designing and developing a disruptive settlement platform and digital custody solution, addressing both traditional and digital assets.
We are proud to announce that we booked the first trades in December 2020 between DekaBank, Hauck & Aufhäuser Privatbankiers and funds of DekaBank’s investment management group. This setup included settlement between different custodians and the management of in-house as well as client positions. Transfer of ownership took place on the DCP, without the need to settle accounts on a central securities depository (CSD) level.
“Digital financial assets and digital financial instruments are the future of finance. However, we think that banks with their unique know-how and unique services are also an indispensable part of any future market infrastructure. Bringing distributed ledger technology onto the ledgers of banks is thus an important step for us and the market as a whole. We hope that more banks join us in rolling out the Digital Collateral Protocol (DCP),” says Michael Cyrus, head of collateral trading and foreign exchange at DekaBank.
Christian Rüffert, head of treasury at Hauck & Aufhäuser, adds: “This industry-wide unique distributed ledger technology (DLT) settled lending transaction between our two banks is a great opportunity for Hauck & Aufhäuser to transition the relatively young and over the past three years developed securities financing setup into a modern und future-proof inter-bank infrastructure. We started with Comyno’s securities financing trading platform two years ago and are amazed by the potentials this technical partnership offers now.
“In addition to our up and running crypto fund and newly funded Management company to manage crypto assets we hereby prepare an offering for our client base to take advantage of DCP as the most efficient DLT-based settlement platform for the settlement of collateral.”
Starting point of the project was that both legs of traditional securities finance transactions, underlying and collateral, continue to be scattered across custodians and (international) CSDs, with significant issues arising from moving them quickly and efficiently from where they are to where they are needed. The 2020 crisis reinforced the need for revolutionary technology.
As Comyno was expanding its technological capabilities on blockchain and DLT over the past few years, they were well placed to get deeply involved in an initiative led by DekaBank, named the DCP. Its key element is not tokenisation, but the creation of a common and joined settlement and custody protocol for the transfer of traditional securities. Crucially, it allows securities to be kept at their original custodian and CSD. This is achieved through the transfer of the settlement chain onto the DCP, which is based on Corda DLT. The settlement itself occurs within seconds directly between the participating custodians in a digital representation, exactly as they are today but without the physical settlement. We are convinced that this will be a breakthrough in terms of combining legacy settlement infrastructure and conventional assets with modern technology.
This in turn should lead to tangible operational and technological improvements and will hence free up resources for all involved stakeholders. The efficiencies result from a multitude of areas bringing benefits from several aspects due to the fast and certain settlement:
• Easy expansion of trading relationships through a scalable, transparent and unified settlement network
• Improved balance sheet efficiency due to reduced settlement risk
• Increased operational efficiency by simple, instantaneous and straightforward settlement, hence decreased knock-on effects across the process chain
• Reduced business risk due to increased settlement efficiency leading to reduced buy-in risks and potentially associated fines
• Reduced settlement costs due to a smaller number of intermediaries for international activities
This initial use case covers position-keeping and securities settlement, initiated by the securities loan and non-cash collateral transfer.
Markus Büttner, CEO Comyno, says: “The potential of the DCP embodies our vision of the future financial markets — the consolidation of the entire value chain on a standardised, decentralised infrastructure while at the same time merging traditional and digital assets. Current weak points and risks are not symptomatically healed, but rather eliminated at the root, with many new business opportunities for all participants at the same time. Comyno’s early focus on decentralised architectures and the digitisation of securities was the ideal prerequisite for designing and implementing such an innovative initiative with our unique business know-how and technology. We look forward to the upcoming expansion of the network with further market participants and future-oriented products.”
It needs to be emphasised that the DCP is an initiative with a shared goal for all Securities Finance stakeholders, and a win-win constellation for each of the participants. There has been widespread interest across the Securities Finance industry with the aim to get the DCP fully operational as soon as possible. We couldn’t be more excited by the combination of forces and would be happy to engage in any form of dialogue to strengthen and extend the DCP network on a global basis.
We are proud to announce that we booked the first trades in December 2020 between DekaBank, Hauck & Aufhäuser Privatbankiers and funds of DekaBank’s investment management group. This setup included settlement between different custodians and the management of in-house as well as client positions. Transfer of ownership took place on the DCP, without the need to settle accounts on a central securities depository (CSD) level.
“Digital financial assets and digital financial instruments are the future of finance. However, we think that banks with their unique know-how and unique services are also an indispensable part of any future market infrastructure. Bringing distributed ledger technology onto the ledgers of banks is thus an important step for us and the market as a whole. We hope that more banks join us in rolling out the Digital Collateral Protocol (DCP),” says Michael Cyrus, head of collateral trading and foreign exchange at DekaBank.
Christian Rüffert, head of treasury at Hauck & Aufhäuser, adds: “This industry-wide unique distributed ledger technology (DLT) settled lending transaction between our two banks is a great opportunity for Hauck & Aufhäuser to transition the relatively young and over the past three years developed securities financing setup into a modern und future-proof inter-bank infrastructure. We started with Comyno’s securities financing trading platform two years ago and are amazed by the potentials this technical partnership offers now.
“In addition to our up and running crypto fund and newly funded Management company to manage crypto assets we hereby prepare an offering for our client base to take advantage of DCP as the most efficient DLT-based settlement platform for the settlement of collateral.”
Starting point of the project was that both legs of traditional securities finance transactions, underlying and collateral, continue to be scattered across custodians and (international) CSDs, with significant issues arising from moving them quickly and efficiently from where they are to where they are needed. The 2020 crisis reinforced the need for revolutionary technology.
As Comyno was expanding its technological capabilities on blockchain and DLT over the past few years, they were well placed to get deeply involved in an initiative led by DekaBank, named the DCP. Its key element is not tokenisation, but the creation of a common and joined settlement and custody protocol for the transfer of traditional securities. Crucially, it allows securities to be kept at their original custodian and CSD. This is achieved through the transfer of the settlement chain onto the DCP, which is based on Corda DLT. The settlement itself occurs within seconds directly between the participating custodians in a digital representation, exactly as they are today but without the physical settlement. We are convinced that this will be a breakthrough in terms of combining legacy settlement infrastructure and conventional assets with modern technology.
This in turn should lead to tangible operational and technological improvements and will hence free up resources for all involved stakeholders. The efficiencies result from a multitude of areas bringing benefits from several aspects due to the fast and certain settlement:
• Easy expansion of trading relationships through a scalable, transparent and unified settlement network
• Improved balance sheet efficiency due to reduced settlement risk
• Increased operational efficiency by simple, instantaneous and straightforward settlement, hence decreased knock-on effects across the process chain
• Reduced business risk due to increased settlement efficiency leading to reduced buy-in risks and potentially associated fines
• Reduced settlement costs due to a smaller number of intermediaries for international activities
This initial use case covers position-keeping and securities settlement, initiated by the securities loan and non-cash collateral transfer.
Markus Büttner, CEO Comyno, says: “The potential of the DCP embodies our vision of the future financial markets — the consolidation of the entire value chain on a standardised, decentralised infrastructure while at the same time merging traditional and digital assets. Current weak points and risks are not symptomatically healed, but rather eliminated at the root, with many new business opportunities for all participants at the same time. Comyno’s early focus on decentralised architectures and the digitisation of securities was the ideal prerequisite for designing and implementing such an innovative initiative with our unique business know-how and technology. We look forward to the upcoming expansion of the network with further market participants and future-oriented products.”
It needs to be emphasised that the DCP is an initiative with a shared goal for all Securities Finance stakeholders, and a win-win constellation for each of the participants. There has been widespread interest across the Securities Finance industry with the aim to get the DCP fully operational as soon as possible. We couldn’t be more excited by the combination of forces and would be happy to engage in any form of dialogue to strengthen and extend the DCP network on a global basis.
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