Topic: DCR Longbox: Triparty Collateral via HQLAX
Date: 30 April 2025
Location: The Dome Room, 1 Cornhill, London, EC3V 3ND
Attendees: Representatives from Bank of America, Barclays, BNP Paribas, BNY, Citigroup, Clearstream Banking, HSBC, JP Morgan, Standard Chartered, State Street & UBS
Facilitators: Martin O’Connell, Richard Glen
Thank you all for taking the time to attend the roundtable. It was indeed a very lively discussion, and I truly appreciate your active participation. As an industry, we have been grappling with the headwinds caused by the siloed nature of our collateral management plumbing for over three decades. At long last, we now have an industry solution that enables scalable collateral mobility across triparty agents and custodians, and it is called DCR Longbox. The time for redefined collateral mobility has arrived, and I encourage everyone to continue rallying around the implementation of this game-changing initiative.
To socialize the benefits of DCR Longbox and the friction points & inefficiencies it mitigates
To confirm the factors that would be most important when considering the adoption of DCR Longbox as well as any concerns or reservations
To align on the business cases that would unlock commercial value for DCR Longbox users
Efficient movement & utilisation: DCR Longbox aims to enhance collateral mobility for banks & TPAs. Transferring ownership of securities using HQLAx allows for a potentially faster, more efficient movement & utilization of collateral.
Traditional limitations: Settlement friction between custodians & TPAs, process cost, operating hours, inability to view & mobilize collateral in real-time, risk of failure.
Benefits: Improved collateral optimisation across trades, asset classes, locations & venues, unlocking the value of assets that are currently difficult or costly to mobilize, creation of new mobility use cases e.g. intra-day activities, and real-time reconciliation using DLT infrastructure. Once on ledger, securities can be transferred 24/7.
Custodial Relationships: The link between existing custodians and CIre is a crucial element of the architecture. Banks need to help HQLAx prioritize markets and relationships to maximize value in delivery.
Instruction & Integration: Solutions like Pirum and Transcend are being considered for settlement instruction and collateral optimization. Leveraging configurable instruction methods, including SWIFT and APIs, is key for participants.
Inventory management & visibility: Ensuring consistent, accessible data regarding asset location and eligibility within TPA collateral schedules is a requirement. DCR Longbox might be initially additive to existing reconciliation processes in the short-term, but it could result in banks getting real-time access to DLT nodes in the longer-term.
Legal Framework: Due diligence on the sub-custody stack follows existing templates. Event of default handling needs to be comparable to existing processes, noting differences in SSIs. There are jurisdictional differences regarding whether ownership & property rights recorded on DLT equate to tokenisation. Different markets have specific legal restrictions regarding collateral mobility which need to be considered when assessing opportunities.
TPAs: TPAs are actively involved in defining the operating model, including how collateral schedules might need to adapt, the level of disclosure required for beneficial owners, and how they will interact with the digital ledger while maintaining consistency across their existing processes. There is recognition that TPA balances could grow in aggregate as a result of DCR Longbox, but the service needs to be the same or better than existing solutions.
Banks: Banks are highly supportive of the initiative and focused on the practical implications, such as impact on instruction processes & existing workflows (e.g., recalls). DCR Longbox also needs to be sustainable commercially, with specific concerns around additive costs, accessibility to counterparties, & impact to league tables. Trade agreements, eligibility, and haircuts should function as they do today, without differentiating the use of a digital ledger.
Shared Concerns: A common thread developed around how corporate actions will be handled within the DCR Longbox environment, including substitutions, and ensuring robust controls & processes for all event & election types.
Phased approach: A likely implementation strategy involves starting with limited counterparties to ensure feasibility before wider adoption. Identify the blockers and solve them one by one. Focus initially on the movement of collateral with future expansion to other use cases e.g. lending of ETFs.
Collaboration & Consensus: Achieving market consensus and interoperability between different ledgers and platforms is crucial for the long-term success of DCR Longbox. Building a strong network effect is seen as essential.
Commercial Viability: Demonstrating a business case and identifying tangible commercial value for participants is paramount. This includes quantifying the benefits of increased efficiency, access to liquidity, and potential new revenue streams.
Tangible Benefits: Focus initially on use cases that offer clear and demonstrable benefits, such as resolving "trapped asset" challenges and building a product network that enables scale.
Enable On-ledger Reuse: The DvD (Delivery vs. Delivery) reuse case is also seen as a significant potential value driver by providing scalable on-ledger opportunities for ISIN DCRs.
Strategic Alignment: DCR Longbox is viewed as a move towards a more digital-native approach to inventory & collateral management. Participants recognize its potential as a "game changer" for frictionless interaction across assets and liabilities, provided its cost is reasonable.
Future Opportunities: DCR Longbox initiative represents a significant step towards leveraging DLT to modernize collateral management. The possibility of mobilizing collateral or covering margin calls on a 24/7 basis in the future is attractive.
" All you need to do is open an account!"
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