A Swiss-German consortium has successful traded company shares on a blockchain-style digital platform using a Swiss franc-backed stablecoin to instantly settle the transaction. The trade marked a significant step towards creating a new breed of stock exchange.
Germany’s largest stock exchange Deutsche Börse teamed up with telecommunications company Swisscom, three Swiss banks and two digital finance companies to pull off the transaction, it was announced on Tuesdayexternal link.
An unnamed Swiss company issued digital tokens representing shares, which were then traded among Falcon, Vontobel and Zurich Cantonal Bank. Clearing and settlement of the trade was coordinated to produce an instant transaction.
The test trade also made use of a digital token backed by Swiss francs, known as a stablecoin, to make the payments. This was issued by Eurex Clearing, which deposited the underlying francs at a segregated account at the Swiss National Bank (SNB).
The SNB is currently working with the Swiss stock exchange operator SIX Group to issue its own franc-backed stablecoin to settle trades on the mooted Swiss Digital Exchange (SDX). The Deutsche Börse-Swisscom platform appears to have crept ahead in the race, but the consortium declined to say when its model will be fully operational.
Trades on current digital exchanges take a couple of days to complete, tying up vast amounts of cash as collateral in case the transaction falls through. Distributed Ledger Technology (DLT) platforms, similar to blockchain, are designed to reduce risk for counterparties and speed up the flow and volume of transactions that can be processed.
“DLT has the potential to reach a new level of speed and efficiency in the financial services sector,” stated Johs Höhener, head of Fintech at Swisscom.
The consortium says the pilot also paves the way for small companies to raise capital more efficiently and at less cost than the traditional system. In future it might be possible to tokenise objects such as art and property to trade on exchanges.
However, it is believed that the full integration of DLT into the traditional financial system will require changes to financial and corporate laws – a process currently being undertaken by Switzerland and other countries.