HQLAᵡ is a financial technology innovation firm that leverages R3’s distributed ledger technology, Corda, to provide liquidity management and collateral management solutions for institutional clients in the global securities financing markets.
HQLAᵡ and Deutsche Börse Group formed a strategic partnership for the creation of a joint operating model that provides market participants with improved collateral mobility across a fragmented securities settlement eco-system.
In the HQLAᵡ / Deutsche Börse Group operating model, there is no movement of securities between custodians. Instead, a digital collateral registry is used to record ownership of baskets of securities, whilst the underlying securities remain static in the custody location of the collateral giver. This enables platform participants to seamlessly execute capital efficient securities lending transactions for enhanced balance sheet optimization.
Collateral upgrade transactions, evergreen / extendible maturities
Intra-day Liquidity Management
Transfer of ownership of baskets of securities intraday DvD
Pledge baskets of securities real-time
Mobilise hard-to-move assets
Transfer of ownership/pledge at precise times during the day
Regulatory transparency and risk compression post-default
Reduction in intraday liquidity requirements
Reduction in intraday credit exposures
Scalable for future digitised assets
Inter-operability across custodians
Banks are facing increasing regulatory requirements for liquidity and capital, which are pressuring their earnings; there is a clear market need for a platform that can source and monetise liquidity efficiently, effectively, and transparently.
- The current collateral upgrade market relies on collateral to be managed across a fragmented custody network.
- Settlement of transactions occurs at unspecified times during settlement windows
- Current market practice is to settle collateral upgrade transactions either by:
• Two Free of Payment (FoP) deliveries, or
• Two Delivery versus Payment (DvP) settlements
- Both settlement practices consume costly bank capital. The former consumes intraday credit due to timing and mismatches of unsynchronised (FoP) deliveries, and the latter consumes intraday liquidity due to the cash payment legs of (DvP) settlements.
- HQLAᵡ uses new technology in an innovative way to enhance collateral mobility across the existing custodian/triparty landscape.
- The HQLAᵡ operating model leverages distributed ledger technology to enable atomic Delivery verses Delivery (DvD) for baskets of securities residing at multiple custodians.
- DvD reduces consumption of intraday credit and intraday liquidity, thereby providing capital savings.
- Not only a date but also a time is specified for the start leg and end leg of a transaction.
- HQLAᵡ could ultimately be used to enhance regulatory transparency over collateral chains, and potentially facilitate risk compression solutions for post default scenarios.
- Initial roll-out in Europe, longer term strategy is to expand to APAC and US.