The implementation of new bank regulations for liquidity, mandatory clearing, and margin requirements for OTC derivatives have caused a significant increase in demand for High Quality Liquid Assets (HQLAs). As a result, there exists a heightened need for a marketplace to facilitate large scale, cost efficient collateral transfers across the global financial eco-system.
The main cost drivers and hurdles for traditional collateral transfers are capital costs associated with balance sheet usage, and settlement / operational bottlenecks associated with the delivery of securities across a fragmented securities settlement system. The vision behind HQLAX is to provide market participants with a platform that helps improve collateral fluidity by creating a new, more efficient, more transparent and more cost effective marketplace for liquidity transfers.
DCRs (Digital Collateral Receipts) will represent baskets of securities held for safekeeping at a trusted third party. The free exchange of DCRs will affect legal title transfer of the underlying securities that comprise the DCRs, thereby facilitating liquidity transfers without the operationally onerous requirement to move securities
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. To avoid possible perception of anti-competitiveness, the consortium will be neutral and provide equal access
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 with the R3 Accelerator phase to execute a live pilot in Q4 2017, and open for business with production ready platform in Q4 2018.
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.
WHERE ARE WE?
- LIVE PILOT: Target date November 15, 2017
- FULL PRODUCTION PLATFORM: by Q4, 2018