With the execution of multiple simulation transactions by several global banks including Commerzbank and ING, HQLAˣ successfully demonstrated its operating model, an innovative blockchain based solution for collateral swaps in the securities lending market that it has jointly developed with Deutsche Börse Group.
As part of these simulation transactions, ownership of baskets of securities residing at Clearstream Banking S.A. and Euroclear Bank were exchanged without the need for securities to be moved across the Bridge, the long-established electronic communications platform to transmit securities between these two institutions.
HQLAˣ and Deutsche Börse Group continue to actively on-board additional market participants, and the full launch of the platform is planned for November 2019.
In addition, J.P. Morgan have commenced the on-boarding of the Deutsche Börse Group owned Trusted Third Party (TTP) entity as a Collateral Receiver and Collateral Account owner, in the J.P. Morgan Tri-party programme. Advanced discussions are underway with additional leading custodians and tri-party agents.
Guido Stroemer, CEO of HQLAˣ, states, “The successful execution of these simulation transactions is particularly important because they test the front-to-back trade flow across the four layers of the HQLAˣ operating model. As such, the simulation transactions are a key milestone in our client on-boarding journey.”
The HQLAˣ operating model consists of four layers and 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 BaselIII regulations. HQLAˣ’s digital collateral registry, as one of the layers, was built on R3’s distributed ledger technology (Corda). It enables delivery versus delivery (DvD) ownership transfers of baskets of securities, eliminating the operationally onerous requirement to move securities across fragmented securities settlement systems. The other layers are the leadingEurex Repo F7-trading system, where transactions are executed, the participating custodians/tri-party agents, where the securities are deposited and the TTP, which links the custodians/tri-party agents to the digital collateral registry. The HQLAˣ operating model allows market participants to connect to the platform via existing well-established interfaces.