Deutsche Börse Group and HQLAᵡ have signed a Letter of Intent to form a strategic partnership for the creation of an innovative securities lending solution using the R3 Corda blockchain platform.
Using Corda’s unique blockchain technology, the partners will build a fully integrated front to back operating model to facilitate more efficient collateral management of high quality liquid assets. These assets are in heightened demand due to the implementation of bank regulations for liquidity, mandatory clearing and margin requirements for OTC derivatives. According to the most recent Basel III Monitoring Report1, the global banking industry reported holdings of €11.95 trillion of high quality liquid assets.
The trading layer will be delivered exclusively by Deutsche Börse’s Eurex Repo platform, which will enable market participants to leverage existing connectivity to the market-leading Eurex Repo service. Deutsche Börse Group will in addition assume a lead role in the custody agnostic, post-trade processing layer, which is designed to interoperate with multiple collateral agents and custodians.
The partnership with Deutsche Börse is expected to foster market adoption by enabling seamless connectivity with HQLAᵡ , for both trade execution and post-trade processing.
The securities lending market has long played an important role in high quality liquid assets portfolio management. However, incumbent operational bottlenecks across a fragmented global securities settlement system impede collateral fluidity, increase costs and risks, and result in sub-optimal financial resource management. In Europe alone, there exist over 40 central securities depositories (CSD).
Addressing these issues, HQLAᵡ will help market participants redistribute collateral liquidity more efficiently, by improving interoperability for pools of securities residing in multiple, disparate settlement systems and locations.
In a traditional settlement of a securities lending transaction, underlying securities are transferred between custody accounts. In the HQLAᵡ operating model, legal title transfer of baskets of securities will be achieved by the transfer of ownership of HQLAᵡ Digital Collateral Records (DCRs) while the underlying securities remain static within unique DCR-linked custody accounts. The use of DCRs to effect transfers of securities will enhance regulatory transparency, mitigate systemic risk, reduce operational risk, and help financial institutions mobilise collateral and manage capital more efficiently.
The strategic partnership between Deutsche Börse Group and HQLAᵡ brings the HQLAᵡ collateral lending solution built on Corda, one step closer to production.
Guido Stroemer, CEO of HQLAᵡ, commented: “Our goal is to mobilise liquidity across pools of collateral currently residing in disparate custody accounts around the globe. Partnering with Deutsche Börse Group enables us to maximise the network effect that will drive widespread adoption of the HQLAᵡ platform. We look forward to further collaboration with the broader community of collateral agents and custodians.”
David Rutter, CEO of R3, added: “Partnering with a market leader like Deutsche Börse Group is a major milestone for HQLAᵡ, and Corda is the perfect choice of platform. It was built from the ground up to enable businesses in complex and often highly regulated markets to overcome real-world challenges like this those associated with securities lending.”
Philippe Seyll, Executive Manager at Deutsche Börse Group, commented: “Jointly with our partners, we will address some of the major issues in today’s securities lending markets through innovate means. With the creation of a neutral custody agnostic control layer, Deutsche Börse is embracing distributed ledger technology and complements it with a neutral and trusted market infrastructure role open to multiple custodians and collateral agents. This way Deutsche Börse supports market participants to deal with the global regulatory framework whilst reaping the benefits of the leading edge distributed ledger technology.”
1 Basel III Monitoring Report (March 2018)
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.
HQLAᵡ is a financial technology innovation firm that specializes in delivering liquidity management and collateral management solutions for institutional clients in the global securities lending and repo markets. Learn more at www.hqla-x.com.
R3 is an enterprise software firm working with a network of over 200 banks, financial institutions, regulators, trade associations, professional services firms and technology companies to develop on Corda, its blockchain platform designed specifically for businesses.
R3’s global team of over 140 professionals in nine countries is supported by over 2,000 technology, financial, and legal experts drawn from its global member base. R3 is backed by investment of USD 107 million from over 40 firms
Corda is the outcome of over two years of intense research and development by R3 and its members and meets the highest standards of the banking industry, yet is applicable to any commercial scenario. It records, manages and executes institutions’ financial agreements in perfect synchrony with their peers, creating a world of frictionless commerce. Learn more at www.r3.com.