Government-owned development bank KfW is planning to issue its second DLT-based bond in the coming weeks. Today Boerse Stuttgart Digital announced it will provide the wallet and private key infrastructure for the planned digital bond issuance and redemption. KfW previously announced plans for its second DLT bond, which will settle in central bank money through participation in the ECB’s wholesale DLT settlement trials.
In July KfW issued a €100 million ($108m) DLT bond on the Polygon blockchain in compliance with the German Electronic Securities Act (eWpG). It was conservatively managed, with DZ Bank acting as the collective registered holder on behalf of all investors. KfW has also issued other digital bonds using a central securities depository (CSD), including a €4 billion issuance in July.
“As one of the world’s largest and most active bond issuers, we are actively driving digitalisation initiatives in the issuing and settlement process,” said Gaetano Panno, Head of Transaction Management at KfW. “The utilisation of new technologies as part of the ECB trials enables us to technically process a ‘delivery vs. payment’ transaction and thus supports our digital learning journey.”
Delivery versus payment, or atomic settlement in blockchain parlance, is a key DLT benefit. The simultaneous exchange of the payment and the security reduces counterparty risk.
Boerse Stuttgart and digital securities
Separately, the Boerse Stuttgart Group is also taking part in the ECB wholesale DLT settlement trials as a stock exchange. It has developed a settlement solution and will be involved in settlement tests using the Bundesbank’s trigger solution, which links to Europe’s TARGET 2 payment system. Those tests will also use its wallet and private key infrastructure.
“As a pioneer in digital assets, we aim to significantly shape the digital European market infrastructure. The expansion of our offering for institutional clients and our involvement in KfW’s next blockchain-based digital bond mark a milestone in the digital transformation of the financial sector,” says Ulli Spankowski, Managing Director of Boerse Stuttgart Digital.
Meanwhile, later this year the stock exchange is planning to launch a secondary market for digital securities, BX Digital, that also supports settlement. However, rather than launching it in Germany, it will be based in Switzerland.
While Germany’s eWpG supports the issuance of DLT securities, the EU’s laws require the involvement of a central securities depository (CSD) for the settlement of secondary market transactions. The EU’s DLT Pilot Regime allows the trading and settlement to take place on the same platform. However, even under the DLT Pilot Regime, any operator of a settlement system must have a CSD registration. So far no platforms have received authorization, although in April there were four pending registrations.