Russian Bank Sberbank Uses A Blockchain Smart Contract For A Three-Way OTC Repurchase Agreement
Blockchain technology has recently found a new use case in Russia, after being used to finish a repurchase agreement, which is also known as a repo. Sberbank, the state-owned Russian bank, announced this transaction on Thursday, involved the “world’s first” transaction of this kind includes three parties in an over-the-counter (OTC) agreement with a smart contract.
With a repo, the first party purchases securities, and then the seller creates a plan to purchase them back at a specified date and price. It is no different from a short-term loan. In this particular instance, Sberbank’s part was to act as the seller. Region Brokerage Company was the buyer, with the National Settlement Depository as the settlement agent. This deal involved government loan bonds, but the overall value of the exchange was not listed.
By integrating blockchain for this situation, the three parties had the option to automate certain processes, like execution of margins, settlement, and repository reporting. The parties adhered to the local laws in the agreement, which they used a smart contract to sign.
Sberbank’s vice president and head of the global markets department, Andrey Shemetov, said,
“The combination of smart contracts and distributed register technology makes financial contracts more transparent and increases security for both clients and the bank. 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.”
Sberbank was responsible for the launch of a blockchain lab this year, allowing them to research, create, and trial various solutions with blockchain in business. By May, they established a partnership with MRS for the use of blockchain with commercial bond transactions, which was worth about $12 million.
Many traditional financial institutions have been examining the way to use blockchain transactions for settlement transactions. A live transaction was settled just yesterday amongst four European banks – Commerzbank, ING, Natixis, and Rabobank – on the Corda platform. Last month, a settlement system was setup for the central bank and stock exchange in Singapore, employing smart contracts to eliminate the concerns involve with the post-trade processes.