Siemens Issues 300 Million-Euro Bond on the Blockchain
By Viktor Banh, Alexander Bechtel, and Manuel Klein
The largest issuance of a crypto security in Germany to date was made possible through the collaboration of Siemens and key financial and technology service providers.
On September 3, representatives from six major German financial institutions and technology service providers met virtually with Siemens’ treasury team to write a piece of German financial market history. In less than three hours, they accomplished what normally takes days: the issuance and settlement of a corporate bond.
The traditional German company Siemens issued a €300 million bond entirely digitally as a token on a blockchain-based securities platform. This eliminated the need to create and store a physical certificate. After about two hours, all signed contracts from investors were in place, and within just one more hour, the security was digitally issued and settled in central bank money through a delivery-versus-payment transaction.
However, focusing solely on this short timeframe doesn’t do justice to the extensive preparatory work performed. It’s akin to athletics: It takes considerable training and process optimization to successfully apply what has been tested and ideally make it routine. The partners involved have now built up significant expertise: DekaBank, which played a central role as the registrar, had already issued Germany’s first crypto security in December 2021.
In less than three hours, the involved parties accomplished what normally takes days: the issuance and settlement of a corporate bond.
Siemens is also no newcomer to the field of crypto securities. In February 2023, the company gained valuable initial experience with a digital bond issuance of €60 million. Thus, the September 3 transaction was already Siemens’ second blockchain-based bond issuance. In addition to Siemens and DekaBank, other companies and settlement solutions were involved: Technology provider SWIAT orchestrated the issuance and settlement process on its platform where the bond was issued. Deutsche Bank, as Siemens’ house bank, processed payments from investors BayernLB, DekaBank, DZ Bank, and LBBW via the Bundesbank trigger solution and credited the proceeds to Siemens’ account. Helaba was also active as an investor.
The bond issuance was part of the “ECB Trials,” a European Central Bank (ECB) project exploring new technologies in digital central bank money settlement. From spring until the end of November this year, selected market participants are testing various solutions offered by the Eurosystem.
Settlement Risk Virtually Eliminated
The Deutsche Bundesbank’s trigger solution is one of these interoperability solutions. It connects market-operated Distributed Ledger Technology (DLT) platforms with the Eurosystem’s traditional payment system, enabling immediate settlement of DLT-based financial market transactions via existing Bundesbank accounts of participants in central bank money. This technical solution is a crucial puzzle piece to unlock blockchain technology’s potential for the financial industry. By settling in central bank money through a delivery-versus-payment transaction, settlement risk is virtually eliminated.
Equally important as the ECB Trials is adequate financial market regulation. The Electronic Securities Act (eWpG), introduced in June 2021, creates the regulatory framework in Germany for electronic securities issuance. It enables both central register securities and crypto securities managed on blockchain platforms. Siemens utilized this crypto security option.
With the introduction of electronic securities, market participants anticipate increased transparency, automation, and, eventually, lower issuance and transaction costs. Unlike traditional securities, the printing, delivery, and physical storage of certificates at central securities depositories like Clearstream or Euroclear are eliminated. The current settlement process between the issuer, main investor banks, and other investors who buy securities from these banks requires several steps in the respective institutions and at the central securities depository. The central securities depository is ultimately responsible for the delivery-versus-payment settlement (security against central bank money).
In the Siemens issuance, all investors could subscribe to the security directly. Settlement via the Bundesbank’s trigger solution was initiated through an interface on SWIAT’s digital securities platform. This enabled delivery-versus-payment settlement without an intermediary, such as the central securities depository, using only a technical interoperability solution. Immediately after settlement, bondholders could view their register entry for the security on the digital securities platform.
Although the Siemens transaction was successful, it remains to be seen to what extent blockchain technology’s promises in the securities sector will actually be fulfilled. Germany has a head start through the eWpG and strong engagement in the ECB Trials, which it should leverage. The ECB could make a decisive contribution to the further development of this promising technology by providing a permanent solution for payment processing in central bank money that extends beyond the current ECB Trials.
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This article was originally published in Frankfurter Allgemeine Zeitung (FAZ) in German. For the original version, click here.
Disclaimer: The contents of the article reflect the private opinions of the authors and not necessarily those of DekaBank, Deutsche Bank, and DWS.