The development of the HQLAᵡ target operating model, an innovative blockchain solution for collateral swaps in the securities lending market by Deutsche Börse Group and HQLAᵡ, is showing significant progress. In March 2018, Deutsche Börse Group and HQLAᵡ announced a cooperation for a securities lending offering based on R3’s Corda blockchain solution. It aims to facilitate more efficient collateral management of high-quality liquid assets (HQLAs), which are in heightened demand due to increased clearing and margin requirements under Basel III regulations.
Following extensive testing during deployment over the past months, the technical set-up is close to final, as is the legal and regulatory framework. Six banks already confirmed that they have started their onboarding processes and will join the platform at launch date, which is expected in the first half of 2019.
Unlike in traditional settlement, there will be no actual movement of securities between custody accounts on the HQLAᵡ 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 redistribute liquidity more efficiently by providing collateral mobility 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.
In December 2018, Deutsche Börse acquired a second tranche of shares in HQLAᵡ to further strengthen its ties with the company. Deutsche Börse had acquired a first minority stake in the company in August 2018.
Guido Stroemer, CEO of HQLAᵡ , comments: “The interest and commitment shown by the market prove that blockchain can bring tangible benefit to our industry. In Deutsche Börse we found the perfect partner to exploit this potential. The increased shareholdings confirm their strong commitment to our business and the joint solution.”
Jens Hachmeister, in charge of blockchain initiatives across Deutsche Börse Group, comments: “This blockchain use case reveals the significance and potential of the technology. This creates higher liquidity, transparency and efficiency for financial markets in general and securities financing in particular. We look forward to applying DLT for further solutions along the whole value chain.”
Clearstream, Deutsche Börse Group’s post-trading services provider, will act as custodian. Additionally, Deutsche Börse is in advanced discussions with further custodians to participate.
Philippe Seyll, CEO of Clearstream Banking S.A., comments: “We are thrilled to see the progress of the platform. It shows the technology’s potential to enhance collateral liquidity management by lowering obstacles between different systems and locations.”
About Deutsche Börse Group
Deutsche Börse Group is one of the largest exchange organisations worldwide. It organises markets characterised by integrity, transparency and safety for investors who invest capital and for companies that raise capital – markets on which professional traders buy and sell equities, derivatives and other financial instruments according to clear rules and under strict supervision. Deutsche Börse Group, with its services and systems, ensures the functioning of these markets and a level playing field for all participants – worldwide. As a technology innovator, the company started a number of blockchain-related initiatives more than three years ago. These include, amongst others, an investment in Digital Assets Holdings.
HQLAᵡ is a financial technology innovation firm that specialises in delivering liquidity management and collateral management solutions for institutional clients in the global securities lending and repo markets. www.hqla-x.com.