Government-owned development bank KfW is preparing to issue its second bond utilizing Distributed Ledger Technology (DLT) in the coming weeks. This issuance will feature a digital bond, with Boerse Stuttgart Digital providing the essential wallet and private key infrastructure for the bond’s issuance and redemption processes. This initiative is part of KfW’s broader participation in the European Central Bank’s (ECB) wholesale DLT settlement trials, where transactions will be settled in central bank money.
KfW has been a pioneer in the digital bond space, having previously issued a €100 million DLT bond on the Polygon blockchain in July, following the regulations of the German Electronic Securities Act (eWpG). This bond was managed cautiously, with DZ Bank acting as the collective registered holder on behalf of investors. Additionally, KfW issued another significant digital bond valued at €4 billion through a central securities depository (CSD).
Gaetano Panno, Head of Transaction Management at KfW, highlighted the significance of utilizing new technologies within the ECB trials. Specifically, the ability to technically execute a “delivery versus payment” (DvP) transaction—a simultaneous exchange of securities and payments—underscores the advantages of blockchain technology, particularly in reducing counterparty risk.
Boerse Stuttgart Group, which is also participating in the ECB’s DLT settlement trials, has developed a settlement solution and will be conducting settlement tests using the Bundesbank’s trigger solution. This solution connects to the TARGET 2 payment system and leverages the same wallet and private key infrastructure provided for KfW’s bond issuance.
Ulli Spankowski, Managing Director of Boerse Stuttgart Digital, emphasized the company’s role in shaping the digital transformation of the European financial market infrastructure. The company’s involvement in KfW’s upcoming blockchain-based bond issuance is considered a significant milestone in this digital evolution.
Looking forward, Boerse Stuttgart plans to launch a secondary market for digital securities, BX Digital, later this year, which will be based in Switzerland rather than Germany. While Germany’s eWpG facilitates the issuance of DLT securities, the European Union’s regulations still require a central securities depository (CSD) for the settlement of secondary market transactions. The EU’s DLT Pilot Regime does allow for trading and settlement on the same platform, but any operator of such a settlement system must still obtain CSD registration. As of April, no platforms had received this authorization, though four were in the process of registration.
Source: ledgerinsights.com
