HQLAx is a financial technology innovation firm that leverages R3’s distributed ledger technology, Corda, to deliver liquidity management and collateral management solutions for institutional clients in the global securities lending and repo markets.
In March 2018, Deutsche Börse Group andHQLAx announced their collaboration in developing an innovative blockchain solution for collateral swaps in the securities lending market. The joint operating model aims to improve collateral mobility across a fragmented securities settlement eco- system.
Unlike in traditional settlement, there will be no actual movement of securities between custody accounts on the HQLAx target operating model. Instead, tokens will be transferred while the underlying securities will be kept off-blockchain and remain static. This helps market participants to manage collateral more efficiently by improving collateral fluidity across systems and locations. The platform will be accessed via Deutsche Börse’s Eurex Repo trading system. A trusted third party layer will be the interface between the distributed ledger technology (DLT) and legacy securities infrastructure, leveraging well-established triparty collateral management services.
Current market condition
- Effective liquidity management is difficult – resulting in impact on Leverage and Capital Ratios
- Lack of standardization and transparency for market participants and regulators
- Liquidation risk in the event of counterparty default
- Operational roadblocks for the settlement of securities across multiple central securities depositories (CSDs)
HQLAX marketplace will …
- Improve collateral fluidity with an operating model that does not require securities to be moved across CSDs
- Create a standardized and transparent marketplace, where regulators are provided with a “DCR Tracking” view
- Reduce systemic risks related to ”fire sales” and “fire buys”
- redistribute liquidity more effectively and more cost efficiently;
- reduce drag on bank earnings due to inefficient HQLA portfolio management;
- enhance regulatory transparency of collateral chains – full on-line and real-time visibility of DCR life- cycle through issuance, ownership chains and redemption; and
- mitigate systemic risk by enabling orderly default unwinds
HQLAX is independent, which provides a non-aligned leader for a consortium of competing global banks, and successfully exhibited a proof of concept platform utilizing the latest in Distributed Ledger Technology in February 2017. Distinct from an industry utility or a trade association, the business will be run with a healthy bottom line. HQLAX combines a nimble footprint of experienced traders/developers with the backing of major market participants.
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 monetize liquidity efficiently, effectively, and transparently
HQLAx is proceeding to be open for business with a production ready platform in Q1 2019.
HQLAx is founded by industry veterans who, from the beginning, have worked in coordination with some of the largest global banks to craft a solution. HQLAx understands that early buy-in from the market’s leading experts and biggest actors is the only way to launch a successful platform.