Deutsche Borse calls its first digital bond “the mp3” for the securities services industry


Deutsche Borse has become the first exchange to launch digital issuance in Germany, under its post-trade service provider Clearstream.

Until last year, German securities required paper notes that required physical storage. Regulations now allow companies to issue digital native securities.

Jens Hachmeister, Head of Issuer Services and New Digital Markets at Clearstream, compared digital bonds to mp3 and the streaming revolution.

“We created the mp3 for the security services industry,” he said. Financial News at Sibos 2022. “We took security and turned it into a digital object.”

“The infrastructure we’ve built creates something comparable to distributing music via streaming.”

Hachmeister said bonds are ripe for digitization. Bonds have a fixed maturity and interest rates, making them predictable securities. Stocks, on the other hand, can involve more work since they are open-ended products subject to stock splits, reversals and corporate mergers.

The exchange said it issues 30,000 to 40,000 digital structured products every day, with an annual ecosystem of 2 million domestic securities, half of which will mature on an annual basis.

“The market will be highly scalable exactly to meet those high numbers needed in the emissions market,” Hachmeister said.

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Deutsche Borse’s digital bond offerings mirror those of the Swiss exchange SIX which launched its own digital exchange in November 2021. It currently trades only one digital corporate bond for SIX Group.

Although the bond platform is compatible with distributed ledger technology, Hachmeister said the new bonds do not currently use the technology. That could change relatively soon.

Recently agreed EU crypto legislation, MiCA, will introduce a pilot DLT regime for the block in March. It will allow exchanges to test and exploit the infrastructure of the DLT market, using less liquid bonds and stocks as test instruments.

Hachmeister said digitization should come with a use case beyond advancements in technology.

“It’s not about technology or securities tokenization, it’s about adding value for market participants.”

For bonds, he said, it’s the ability to issue in minutes, whereas a physical issue can take two to three days.

“Funding needs can be resolved in minutes.”

It’s still early days for digital securities, but the German stock exchange plans to expand its offering. In November, it will expand digital securities to include commercial paper and later medium-term notes.

It also plans to offer digital titles outside of Germany, with the first jurisdiction set to be Luxembourg.

To contact the author of this story with comments or news, email Jeremy Chan

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