Securities Lending Committee
24 September 2018
2. Presentation from HQLAX
The intention of HQLAX is to remove the need for settlement of the collateral itself in a transaction. HQLAX employs distributed ledger technology and the transfer of ‘tokens’, which represent an underlying basket of collateral, via this channel. The initial focus of the product would fall on collateral versus collateral (‘collateral upgrade’) transactions. Collateral management, including title transfer following the exchange of tokens, takes place within a third party custodian. A proof of concept test trade, including the re-use of collateral by a counterparty to the transaction, has taken place on the platform. The triparty agent assures counterparties of the contents of collateral baskets, and removes the need for settlement of the underlying securities. Requisite legal documents – essentially a GMSLA for settling tokens – had been written.
3. Presentation from WeMatch
The intention of WeMatch is for participants to upload their interest on the bid and offer side against specific securities, essentially providing a matching platform. Additionally, an algorithm is used to find and suggest ‘matches’ which may be suitable to certain participants on the platform. It may also assist in provision of evidence for best execution – though agent lender retains ultimate responsibility.
4. Presentation from TradingApps
The intention of TradingApps is to use Distributed Ledger Technology (DLT) in order to provide a ‘single version of the truth’ underpinning the settlement, billing, and reporting aspects of securities lending transactions. The product aims to simplify the post-trade operational processes due to this transaction record shared by counterparties – aiming to simplify what they see as more disjointed and inefficient current processes.
5. Discussion following presentations
It was noted by Committee members that a common theme of the presentations had been that the products intended to improve the efficiency of the existing operational aspects of the securities lending market, rather than – for example – connecting a broader set of counterparties to the securities lending market or expanding the universe of securities available for lending. Regulatory changes were also highlighted as relevant in coming years – for example, SFTR would help in standardising trade reporting.
Members also noted the likely important of DLT in the securities lending market and across financial markets more broadly in coming years – noting that there is broad interest in making use of DLT across other firms and markets. Members briefly discussed the importance in limiting any risk that widespread adoption of one single DLT solution by the market could pose a ‘single point of failure’ risk.