We will provide Improved collateral fluidity with an operating model that does not require securities to be moved across CSDS. A standardized and transparent marketplace, where regulators are provided with a “DCR Tracking” view with reduced systemic risks related to ”fire sales” and “fire buys”.
Operating Model Summary
Digital Collateral Records (DCRs) created using Corda distributed ledger technology, will allow market participants to:
- Exchange legal title ownership of baskets of securities real-time / atomically / delivery-vs-delivery, using standardized DCR lending legal documentation e.g. for collateral upgrade / downgrade transactions. The exchange of DCRs will be possible without the need for the underlying securities to be moved across the custodian infrastructure.
- Pledge baskets of securities real-time e.g. to meet the margin requirements of derivative transactions – initial margin (IM) and variation margin (VM)
Each DCR (Digital Collateral Record) will be backed by pre-defined baskets of eligible HQLA and non-HQLA collateral. This collateral will be stored for safekeeping at a single segregated custody account at a trusted third-party custodian. The creator of each DCR will be obligated to at all times, maintain sufficient value of securities in the DCR custody account equal to or greater than the notional value of the DCR (constant cash value).
Regulators will have access to a real-time view of collateral being transferred amongst market participants. The solution will use standardized haircuts, and facilitate automated liquidation protocols. HQLA DCR’s will be accepted by regulators as HQLA eligible for LCR and NSFR liquidity requirements.