Institutional crypto weekly roundup

Our weekly list of announcements about how capital markets participants and regulators are engaging with digital assets.

Commerzbank, Deutsche Börse and Munich Re asset management arm complete securities settlement transaction using DLT

Commerzbank, Deutsche Börse and MEAG, the asset manager of Munich Re and its insurance arm ERGO, have reached a further step in examining the scope of distributed ledger technology in post-trade services by completing the settlement of a legally binding secondary market securities transaction via tokens; Commerzbank further used the tokenized cash as collateral at Eurex Clearing as Central Counterparty.

The prototype scenario reflected a delivery-versus-payment transaction and the transfer of tokenized cash, aiming on exploring the potential of various comprehensive services leveraging distributed ledger technology.

For this transaction, digital tokens were generated using both commercial bank money (cash tokens) and securities (securities tokens). The simultaneous swap of the tokens as final and binding settlement was enabled by using distributed ledger technology. As a further use case for cash tokens, Commerzbank provided the tokenized cash credits for coverage of margin requirements at Eurex Clearing as CCP as part of their operative risk management.

Eurex Clearing acted as tokenizer of cash, MEAG as the buyer of securities and Commerzbank as the seller and the custodian of the securities tokens. Main incubator, Commerzbank’s research and development unit, provided the blockchain platform.

The underlying technology and the legal concept were jointly developed by Commerzbank and Deutsche Börse. As a first step of their collaboration on DLT, Commerzbank and Deutsche Börse already completed a legally binding repo transaction earlier this year.

Frank Wellhöfer, member of the board of management at MEAG, said in a statement: “For us as investor, distributed ledger technology has a significant potential to increase efficiency of operations. By reducing the need for intermediaries, the transaction process of securities is going to accelerate furthermore. The involvement of tokens representing securities and money will facilitate network efficiencies and build a foundation for the creation of standards. This is important for the buy-side as standards lead to broader market acceptance and thus create liquidity on DLT platforms in general.”

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Standards association ANNA announces digital asset taskforce

The Association of National Numbering Agencies (ANNA) announced a new Technology Taskforce (TF-22) on digital assets to help examine how ISINs (International Securities Identification Numbers) may be able to help identify possible harmonization of standards.

ANNA’s Technology Task Force (TF-22) will examine the identification of digital assets such as tokens and cryptocurrencies, blockchain technology and its associated evolution and application in the financial markets industry.

This, with the objective to assess the role and scope of ISINs with respect to digital asset identification and provide recommendations on the potential benefits of creating guidelines for the assignment of ISINs to all kinds of digital assets e.g. asset tokens, payment tokens, utility tokens and hybrid tokens. Underpinning this evaluation is ANNA’s core aim to support a transparent, compliant and efficient financial markets structure.

Uwe Meyer, executive director and secretariat, ANNA, said in a statement, “With digital assets emerging as a new investment class, the availability of quality, standardized reference data will serve as the foundation for a trusted token market. As the registration authority for the ISIN, ANNA has been responsible for evolving the ISIN standard through its work to benefit the industry at large. As a result, ISINs are issued today in more than 200 jurisdictions worldwide, enabling efficient global cross-border trading and improved transparency. We hope that this TaskForce will ensure that we continue to utilize the ISIN standard wherever we can be sure it will be of most use to the industry. This evaluation process on digital assets is an important part of that journey.”

Manuel Alonso, convenor of ANNA TF 22, said in a statement, “Potential institutional participants in the digital token ecosystem will need accurate, reliable, quality data attributes to make appropriate investment and trading decisions; much like participants in traditional financial markets have today. Issuers of digital tokens are in urgent need of trusted, machine-readable, ISO identifiers and related standards. We have set up the Technology Taskforce to assess the role that ISINs may take to help this process.”

ANNA is a global member association seeking to foster standardization within the financial industry by upholding the International Organisation for Standardisation (ISO) principles and by promoting ISINs, Classification of Financial Instrument codes (CFIs), and Financial Instrument Short Names (FISNs) for financial instruments.

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AFP: EU heavyweights move to block Facebook’s stablecoin

Major European players are joining forces to block Facebook’s proposed digital currency because of the dangers it poses to national sovereignty, said French Economy Minister Bruno Le Maire. The firm opposition from France, Italy and Germany added to the mounting resistance faced by the tech giant’s troubled foray into digital finance.

The Group of 20 economies also warned of “serious” risks of money laundering, fraud and illicit finance posed by Libra, the social media network’s digital currency. Italy, Germany and France will take unspecified steps in the coming weeks “to show clearly that Libra is unwelcome in Europe because our sovereignty is at stake,” Le Maire told reporters on the sidelines of the annual meetings of the World Bank and International Monetary Fund in Washington.

The Group of Seven economies had said any reserve-backed digital currency like Libra — known as a stablecoin — would require a sound legal framework before entering circulation. But European officials say they want to go even further by blocking the currency outright.

Libra also has faced challenges from within after major financial and commercial players in recent weeks have backed out of the project, including Visa, Mastercard, eBay, Stripe, PayPal and the online travel firm Bookings Holdings.

The Libra Association has tried to ward off a blockade by saying it will address the concerns posed by government officials. “I repeat our priority today is to work with regulators to answer their legitimate questions and provide all necessary assurances,” said Bertrand Perez, managing director of the association.

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FSB sets out work to consider regulatory issues of stablecoins

The Financial Stability Board (FSB) published an issues note on regulatory issues of stablecoins. The paper was delivered to G20 Finance Ministers and Central Bank Governors for their meeting in Washington D.C this week. It responds to the G20 Leaders’ Osaka Declaration, which noted the importance of monitoring developments in crypto assets and remaining vigilant to existing and emerging risks, and asked the FSB and other standard‑setting bodies to advise on additional multilateral responses as needed.

The launch of stablecoin-type arrangements for domestic and cross-border retail payments with the potential to reach global scale could alter the current assessment that crypto assets do not pose a material risk to financial stability.

At the same time, the emergence of global stablecoins that could be used for cross-border payments and remittances by a large number of users in different countries could provide benefits to the financial system and the broader economy.

Harnessing those potential benefits, while containing associated risks for the financial system, requires adequate and comprehensive regulatory and oversight arrangements to ensure that any potential risks to financial stability and market functions can be identified and adequately addressed.

An effective regulatory and supervisory approach needs to be able to identify, monitor and address potential risks in a reasonable range of scenarios and use cases. In order to implement the G20 mandate, and building on earlier work by the G7, the FSB will:

  • Take stock of existing supervisory and regulatory approaches and emerging practices in this field, with a focus on cross-border issues and taking into account the perspective of emerging markets and developing economies.
  • Based on the stocktake, consider whether existing supervisory and regulatory approaches are adequate and effective in addressing financial stability and systemic risk concerns that could arise from the individual components of a stablecoin arrangement or their interaction as an ecosystem as a whole.
  • Advise on possible multilateral responses, if deemed necessary, including developing regulatory and supervisory approaches to addressing financial stability and systemic risk concerns at the global level.

The FSB will submit a consultative report to G20 Finance Ministers and Central Bank Governors in April 2020, and a final report in July 2020.


Bermuda is first government using USDC stablecoin for payments and services

Bermuda became the first government to accept payments for taxes, fees and other government services using USD Coin (USDC). Announced as part of a broader initiative from the Bermuda government aimed at supporting the use of USD-dollar backed stablecoins and decentralized finance protocols and services, this is a major milestone in crypto and for the Circle and Coinbase-backed CENTRE Consortium, the creator of USDC.

Earlier this year, Circle became the first company in the world to receive a Class F license under Bermuda’s Digital Assets Business Act so that it could build products and operations that support a broad range of financial services with crypto and digital assets. Part of that license was permission to operate a payment system built on USDC.

Read the full release

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