For the first time, key players in the Swiss financial industry successfully developed and tested a novel settlement mechanism for tokenized investment products on a public blockchain testnet infrastructure. A smart contract, developed by the Capital Markets and Technology Association (the CMTA), allows for streamlined processes, reduces complexity, raises security, and eliminates counterparty risks from trades. The CMTA’s proof of concept marks a milestone for the Swiss financial industry.
The proof of concept involves:
- the issuance of tokenized investment products recorded on an Ethereum test blockchain,
- the trading of these products in Swiss francs on a regulated Swiss securities exchange, and
- the settlement of trades through a smart contract developed by the CMTA.
These three distinct operations – issuance, trading and settlement – all happened within hours, when they take days to unfold in a traditional financial environment.
“We are very proud to have developed this groundbreaking mechanism with numerous partners from the financial and technology industries,” says Jacques Iffland, Chairman of the CMTA. “It will enable the industry to increase efficiency, simplify cross-border settlement and improve the quality of service. And customers will benefit from the efficiency gains.”
Vontobel and Pictet each issued an actively managed equity certificate representing a basket of equities, while Credit Suisse issued a structured note, which were associated with digital tokens recorded on an Ethereum test blockchain, a process commonly referred to as “tokenization”. These securities were then traded on the platform of BX Swiss, a FINMA regulated Swiss securities exchange. The trades were settled bilaterally on the blockchain. To do so, the participants used an on-chain mechanism that secures the parties’ obligations. The settlement in fiat currency (Swiss franc) was made possible by an application called DLT2Pay, a product of targens, that…
