Digital letters on blockchain from savings bank for the first time

"The processing of the sale of these registered securities previously took up to seven days. Now everything happens in a matter of seconds – thanks to blockchain technology.

The fund company Deka is promoting the use of blockchain technology in the securities business within the Sparkassen-Finanzgruppe. Three savings banks have now raised money for the first time by issuing and selling ("emission") digital "savings bank letters" - mainly from other savings banks. "Following the issuance of digital securities, the digital savings bank letter is the next step in Deka's digitization strategy," says Martin K. Müller, who is responsible for banking and custodian business on the Deka Board of Management, in a press release.

 The digital savings bank letter is the first blockchain-based product that has reached full market maturity.

What is special about the "savings bank letters" circulating within the savings bank group is that they are registered paper. These bonds are therefore issued in the name of the creditor and - unlike bearer bonds, which are more suitable for private investors - are not readily transferable to others. They are therefore rarely traded on exchanges, but only directly between seller and buyer, usually from the institutional sector. So far, the proof that a savings bank letter has been assigned as a registered bond has been paper-based: the buyer indicates the purchase and the seller confirms the assignment, explains Deka. This process takes up to seven days afterwards.

"Easier, faster, safer"

By using blockchain technology, it can now be done in a matter of seconds. Deka acted as registrar and paying agent in this first savings bank letter transaction and carried it out, as the securities house of the savings banks announced on Tuesday. The transactions are technically implemented on the blockchain platform of SWIAT GmbH, which has been a joint venture between the founder Deka and the new shareholders Landesbank Baden-Württemberg, the British-Asian bank Standard Chartered and the fintech Comyno since this year.

A blockchain is a continuously expandable list of records in individual blocks that are appended to an existing chain. The technology is best known for public blockchains, which are the basis for mining and transferring cryptocurrencies such as Bitcoin and Ether. The Ethereum blockchain is also used as the basis for digital securities. In the case of savings bank letters, the securities are stored and transmitted via a privately operated blockchain. Together with the public network, these privately organized blockchains in the securities business have a very high level of security against manipulation. On the one hand, this security is to be ensured by simultaneous storage on many servers and, on the other hand, by the necessary consent ("consensus") of many participants when transferring securities to new owners. This is also referred to as a decentralized register or ledger (Distributed Ledger Technology, DLT).

Decentralized blockchains create potential competition for central marketplaces such as Deutsche Börse in the securities business. The three savings banks involved in the Deka transaction from Dortmund, Ludwigsburg and Schwarzwald-Baar praise the simpler and faster tradability of the digital savings bank letters and thus the refinancing. This makes the product more attractive for issuers and investors. The consensus process of the blockchain offers an unprecedented security standard, says Deka. However, the legal basis remains unchanged in the digital form, since the business transaction takes place as before."