Frictionless transfers

April 27, 2020

This article was first published by Duke Magazine, edition #14, April 2020


Can you present HQLAᵡ in a few words?

HQLAᵡ is an innovative financial technology firm founded by financial market practitioners. Our core clients are financial institutions active in securities lending and collateral management, and our shareholders include market-leading service providers in the global financial ecosystem. Our long-term vision statement is to accelerate the financial ecosystem’s transition towards frictionless ownership transfers of assets. We aim to achieve this vision by collaborating with our clients to design, develop and deliver innovative, technology-driven solutions for specific pain points in the financial markets. Our immediate value proposition and mission statement is to improve collateral mobility amongst market-leading triparty agents and custodians.

How is HQLAᵡ leveraging blockchain to better manage collateral liquidity?

In strategic partnership with Deutsche Börse Group, we built an innovative operating model which leverages blockchain technology to improve collateral mobility across a fragmented securities settlement ecosystem. The goal from the very beginning was to build a solution for enhancing collateral fluidity without a “big bang” requirement for our clients to change the way in which they interact with existing securities settlement infrastructure. As such, participants connect to our platform via existing, well-established market infrastructure service providers, such as Clearstream. In the HQLAᵡ / Deutsche Börse Group joint operating model, there is no movement of securities between triparty agents and custodians. Instead, a digital collateral registry – an application built on R3’s Corda blockchain technology – is used to record ownership transfers of baskets of securities, whilst the underlying securities remain static in the custody location of the collateral giver. This enables platform participants to seamlessly execute capital efficient securities lending transactions.

What opportunities do you see for blockchain application in the finance sector in the next 5 years?

In terms of HQLAᵡ, our initial product offering addresses a fairly narrow use case: Delivery versus Delivery (DvD) ownership transfers of baskets of securities residing in disparate securities depositories. However, as part of our longer-term product development, we will consider evolving the HQLAᵡ operating model across multiple dimensions. One very interesting opportunity would be to expand into other asset classes such as cash, precious metals, and commodities. This could be realised by tokenising these assets directly in the HQLAᵡ operating model or through interoperation with other blockchain applications. Another opportunity is to leverage the HQLAᵡ operating model to facilitate more efficient pledging of collateral to satisfy margin pledge requirements for counterparty credit exposures with central clearing counterparties and/or bilateral counterparties.