TARGET2-Securities operation center ©Nils Thies

Trigger Solution New technologies for settlement of DLT-based wholesale transactions in central bank money

The trend towards digitalisation of our entire life areas is ongoing. This also applies to the financial sector. Many market players therefore investigate how innovative technologies and concepts, such as distributed ledger technology (DLT)/blockchain, can reasonably be used. Generally, relevant business transactions in the financial sector also require a cash-leg settlement component, which can be structured differently in detail. From a financial stability perspective, it is of particular importance for central banks to settle financial transactions with systemic relevance in safe and risk-free central bank money, primarily in order to minimize existing credit and liquidity risks.

For some time, the Eurosystem has therefore been looking at how DLT-based financial market transactions could be settled in central bank money. This is summarised under the workstream "New technologies for wholesale central bank money settlement" or, for short, ntw-CeBM settlement.

On 28 April 2023, the ECB announced, via a press release, that the Eurosystem would like to enrich its so far mainly conceptual, activities in this area with interested market participants for practical exploratory work. This work is intended to bring additional, well-founded practical insights into selected technical solution concepts and is scheduled for May to November 2024. The "call for expression of interest", which was published on 13 December 2023, gives market participants the opportunity to express their interest in participating in this exploratory work.

Trigger Solution of Deutsche Bundesbank

Deutsche Bundesbank actively supports the Eurosystem’s exploratory work by providing its DLT-based Trigger Solution, which links market DLT platforms to the traditional payment system of the Eurosystem. In this way, DLT-based financial market transactions resulting from market-operated DLT platforms can be processed in central bank money in the T2 service of the TARGET services in a very simple manner. Concretely, bookings are made to the RTGS Dedicated Cash Accounts (RTGS DCAs) of the T2 service. This means that market participants will benefit fully from the efficient and liquidity-saving mechanisms that already exist. At the same time, they do not need to further separate their liquidity for DLT business, although this would, of course, be possible via a dedicated RTGS DCA. The Trigger Solution is based on the initial Trigger Solution, which was developed and successfully tested together with Deutsche Börse and the German Finance Agency in 2021. For the upcoming exploratory work, it was adapted to the new framework conditions in the course of the transition from TARGET2 to T2.

You can find detailed information on the Trigger Solution of Deutsche Bundesbank in the Process Description Document, the User Requirements Document and the Onboarding Guide which are available below. In addition, Deutsche Bundesbank presented its Trigger Solution in the ECB’s Focus Session on 15 December 2023. The link to the video recording is available below as well.

Further technical specifications regarding the connection and interaction with the Trigger Solution (e.g. API file, chain code) can be found in the restricted service area “Trigger Solution”, for which a separate registration is necessary. You can register via this page. Access will be granted after the formal submission of the registration form for the expression of interest for the use of the Trigger Solution in the context of the Eurosystem's exploratory work.

General information on the exploratory work of the Eurosystem

The exploratory work of the Eurosystem is scheduled for the period from May to November 2024. Exploration focuses exclusively on interoperability solutions, i.e. assets and liquidity are located on different technical platforms. In addition to the Bundesbank, Banca d’Italia and the Banque de France also provide two technical solutions. Market participants have the opportunity to participate in the exploration for the entire period from May to November 2024 (wave 1 // deadline for expressing interest: 31 January 2024) or for a shorter period from July to November 2024 (wave 2 // deadline for expressing interest: 30 April 2024). In addition to experiments, i.e. the settlement of transactions in test environments, the exploration also includes so-called trials, i.e. the settlement of transactions in the production systems. Participation is subject to certain eligibility criteria, the fulfilment of which interested market participants must demonstrate in an appropriate form through their expressions of interest.

Further information on the exploratory work can be found on the ECB’s website, where you can also find the registration form for expressions of interest, which must be submitted to the respective local central bank irrespective of the technical solution to be used.

Involvement of the market participants

In the second quarter of 2023, the ECB established the European market contact group NTW-CG (New Technologies for wholesale settlement – Contact Group) to promote the dialogue and the exchange of information with market participants. Representatives include banks, market infrastructures, innovative financial service providers and central banks.

At national level, the Bundesbank has established the DE-NTW-CG as a forum to exchange with German market participants and to support the work of the NTW-CG on European level.