Russia-based Sberbank (SBRCY) Uses Blockchain Technology to Settle Three-Way Repo Deal

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Russia-based Sberbank (SBRCY) Uses Blockchain Technology to Settle Three-Way Repo Deal

Sberbank (SBRCY), a state-owned Russian bank has reportedly completed a repurchase agreement or repo by making use of blockchain technology. The agreement was sealed by the bank on 6th December Thursday 2018. It is assumed that the combination of smart contracts and DLT will tighten the security for both customers and financial institution.

Sberbank made an announcement through a press release about the agreement stating that the bank settled the “world’s first” three-way over-the-counter (OTC) repo using blockchain technology with the participation from the country’s National Settlement Depository (NSD and Region Brokerage Company. In a repo, entity acts as a purchaser as securities are sold to him and seller here acts as a re-purchaser as he repurchases the securities again at a pre-set future price and date. These are actually short-term loans.

In the testing phase, the Region Brokerage Company acts as the buyer, Sberbank as the seller and National Settlement Depository as a settlement agent. The deal was made for a Russian rouble-denominated OTC repo that was secured by government loan bonds. During the deal, the real value of the instrument was not revealed by any of the party.

By utilizing the power of blockchain technology, the three parties managed to automate different parts of the process such as settlement, execution of margins and repository reporting. Sberbank added that the deal was a binding financial contract signed electronically using smart contract and was governed systematically by existing local laws.

Andrey Shemetov, vice president and head of the global markets department at Sberbank mentioned that “The combination of smart contracts and distributed register technology makes financial contracts more transparent and increases security for both clients and the bank.”

Andrey further added that “We are confident that the market will adopt our technology as a new standard for carrying out OTC repo deals and market players will appreciate all the advantages it offers.”

Earlier in January this year, to develop and test blockchain-based business solutions, Sberbank launched a blockchain laboratory. Later in May, to conduct commercial bond transactions worth $12 million the bank joined hands with telecoms firm MTS. The transaction for the same was made using smart contracts or what we called a blockchain technology.

Nowadays it is quite common to hear news about financial institutions relying more on blockchain technology to settle financial transactions for different assets. Last week, similar news popped out when four European banks namely – ING, Natixis, Commerzbank, and Rabobank settled a short-term debt instrument in a live transaction made on the Corda platform developed by blockchain consortium startup R3.

Last month, the Swiss stock exchange along with the central bank of Singapore by making use of smart contracts formed a settlement system to shorten the settlement cycle and made post-trade exercises flexible.