- Metzler Asset Management (MAM) collaborates with fundsonchain and Cashlink to issue Germany’s first tokenized fund shares, bypassing the need for a Central Securities Depository (CSD).
- The issuance comes on the heels of Germany’s newly minted legislation, the Electronic Securities Act (eWpG), and Crypto Fund Units (KryptoFAV) regulation, both of which facilitate the use of blockchain technology in asset management.
Riding the Wave of Legislative Innovation
Metzler Asset Management (MAM) has paved the way in Germany’s burgeoning tokenized asset sector by issuing its first tokenized fund shares. Contrary to what the term “crypto funds” may imply, these are not cryptocurrency-based assets. Rather, the issuance adheres to Germany’s ‘crypto’ securities laws, which obviate the need for a Central Securities Depository (CSD), provided a Distributed Ledger Technology (DLT) or blockchain is used to record ownership.
To clarify, a CSD is a financial organization holding securities such as shares to enable electronic transactions. DLT, on the other hand, offers a decentralized system for recording ownership, bypassing the need for centralized control. MAM’s pilot program runs for three months and is developed in partnership with fundsonchain and Cashlink, entities previously engaged in Germany’s crypto bond market.
The issuance springs from the soil of recently passed German legislative initiatives—specifically, the Electronic Securities Act (eWpG) and the Crypto Fund Units (KryptoFAV) regulation. The eWpG, for instance, grants legal status to electronic bearer bonds registered on centralized or decentralized ledgers. Earlier, Siemens capitalized on this legislation to issue a €60 million bond on a public blockchain, allowing peer-to-peer transfer of the bonds.
Similarly, the KryptoFAV regulation extends eWpG guidelines to certain kinds of tokenized funds. However, these regulations don’t encompass investment funds structured as limited liability companies (LLCs). What this essentially means is that the fund units, or shares, can be issued and managed more efficiently and cost-effectively using blockchain technology.
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Cashlink brings its substantial credentials to the table as the registrar of crypto securities, having participated in 44% of the 52 crypto bond issuances in Germany. Meanwhile, fundsonchain manages end-to-end processing of tokenized fund units, marking its debut in fund issuance. As for Metzler, while MAM is the issuer of the fund shares, Bankhaus Metzler serves as both the investor and the custodian.
The tokenization allows for “fractionalization of funds,” whereby smaller fund sizes become feasible, or investors can enter with smaller commitments. This dynamic pilot project not only disrupts conventional fund distribution mechanisms but also augments financial inclusivity.
Unconfirmed reports suggest that Deutsche Börse Group’s subsidiary, Clearstream, and other international entities like abrdn in the UK are also exploring similar tokenized assets, signalling a seismic shift in global asset management paradigms.
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