Deutsche Börse Group and HQLAX are planning a partnership for the creation of a 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 HQLAX, 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, HQLAX 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 HQLAX operating model, legal title transfer of baskets of securities will be achieved by the transfer of ownership of HQLAX 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.
Guido Stroemer, CEO of HQLAX, 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 HQLAX 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 HQLAX, 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.”