Deutsche Börse to digitise paper-based systems

Banks and clearing houses are making new efforts to digitize inefficient paper-based practices as rising costs, regulations and new technology breaches are putting pressure on eerie systems.

Deutsche Boerse, the German exchange operator, will announce a digitized central registry on Wednesday that will cover 80% of the country’s securities starting next year. The system is based on blockchain technology and could be used for cryptocurrencies and stablecoins in the future, the exchange added.

Earlier this week, the International Swaps and Derivatives Association (Isda) digitized a vast booklet of legal documents used in most of the world’s derivative transactions to prepare for the arrival of computer-coded contracts. bottom.

These moves to modernize the back office and legal system occur after the financial system has been exposed to extreme tensions due to the volatility caused by the coronavirus crisis last March.

Many banks and asset managers do not know Whether their transaction has been completed. This problem was exacerbated by people working from home.

At the same time, banks continue to be interested in the potential of blockchain technology, where a network of computers validates transactions and creates a single, immutable transaction record.

“Covid has undoubtedly played a role in demonstrating the need for fundamental change, but in the face of this massive global awakening call, many institutions that underpin the financial system It takes time to take action, which is unsustainable, “said Charlie Cooper, managing director of R3, which supports Deutsche Boerse.

The German group says the project was partially facilitated by the following European regulations requiring that all newly issued securities in the block must be in a dematerialized form from 2023. I did. All securities traded must be held electronically by 2025.

Stephan Leithner, a member of the board of directors of Deutsche Boerse, added that the new system will create a “golden source” for all transactions that issuers, regulators and managers can use as the basis for their transactions and management services. He added that he was advanced. ..

Instead of waiting a few days, issuers could offer structured products to investors on the same day, creating a price gap, Reisner said. The new system has the potential to automate coupon payments. “The underlying product is not digitized. Today’s golden source is the documents in our vault.”

The system was initially targeted at structured products such as warrants, certificates and commercial paper, which are popular among German investors.

Microsoft, Digital Asset Holdings, and VMware are helping build distributed ledgers. BNP Paribas, Decabank, Deutsche Bank, Citigroup, Goldman Sachs and Raiffeisen Bank International are one of the banks supporting the project.

For Isda, overhaul was the first attempt since 2006. Since then, its 130-page definition booklet has accumulated 586-page revisions through about 90 supplements that are “no longer sustainable.”

In the future, it will publish a revised digital version, adding that it does not require any additional PDF or paper supplements. Scott O’Malia, CEO of Isda, said the group is working to support the digitization of products and legal documents.

This move could open the derivatives market to more use of computer programs that can include smart contracts, financial assets and can be coded to automatically perform actions such as interest payments. I have.

“Financial institutions aim to increase the efficiency of their operational processes in order to reduce complexity and reduce costs,” he said.

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