Commerzbank, Credit Suisse and UBS execute first live transactions on the Deutsche Börse securities lending platform
Deutsche Börse and HQLAX successfully launched their jointly developed Distributed Ledger Technology (DLT) solution for frictionless collateral swaps in the securities lending market. The live transactions were executed by Commerzbank, Credit Suisse and UBS on the Eurex Repo F7-trading system.
As part of these transactions, ownership of a basket of German government bonds and a basket of corporate bonds was swapped between UBS and Commerzbank, both using Clearstream Banking S.A. as custodian. This was followed by a cross-custodian swap between UBS and Credit Suisse, in which ownership of a basket of corporate bonds at Clearstream Banking S.A. and a basket of German government bonds at Euroclear Bank was exchanged without the need for securities to be physically moved between the collateral agents. Instead, the change in ownership was recorded on the digital collateral registry, which is one of the four layers of the HQLAX operating model and was built on Corda Enterprise, the commercial distribution of R3’s blockchain platform.
The successful launch of the platform is an important milestone for the implementation of DLT in the securities lending market.
“The go-live of the HQLAX operating model demonstrates the power of innovation that DLT is already bringing to the financial services industry,” said Jens Hachmeister, Head of New Markets at Deutsche Börse.
“It proves how new technology can successfully be combined with trusted market infrastructure – and the positive reception of the model in the market speaks for itself. We look forward to continuing our fruitful collaboration with HQLAX.”
The three pioneer banks, Commerzbank, Credit Suisse and UBS, have been working with HQLAX since the start of this digital transformation initiative. “HQLAX have come a very long way in a relatively short period of time,” said Guido Stroemer, CEO of HQLAX.
“The launch of our production platform is the culmination of strong collaboration, not only with our strategic partner Deutsche Börse, but also with R3 and several global banks with which we began our journey less than three years ago in an R3 lab. Our mission statement from the very beginning has been to deliver solutions for specific pain points in the market, and so we worked very closely with a core group of banks to deliver an operating model that was designed by the market, for the market.”
Peter Schmidt, Co-Head, Repo Desk Treasury at Commerzbank, said, “HQLAX delivers a fascinating approach to overcome the fragmented post-trading landscape. It enables treasury departments to manage their collateral pools more efficiently by significantly reducing the settlement cycle and avoiding resource-intensive collateral movements. It is a first but important step toward a new ecosystem where tokenised assets can be traded in a DLT environment.”
Romain Dumas, Managing Director in the Global Liquidity Group at Credit Suisse, added, “These first production trades constitute a major step toward unlocking the operational value we see in technology. We are delighted to have worked with HQLAX since the very beginning and look forward to collaborating with them in the future.”
Gareth Allen, Head of UBS Treasury Assets, said, “It’s very exciting to help bring DLT into the secured funding markets via the HQLAX platform. We hope that innovative ideas like this bring more liquidity to the secured funding markets and allow them to operate more efficiently. We look forward to our continued collaboration with HQLAX and its growing ecosystem of custodians and market participants to help shape strategic innovation in the securities lending market.”
In addition to Commerzbank, Credit Suisse and UBS, over 15 market participants, including CIBC, Citi, Goldman Sachs and ING, are currently engaged in different phases of onboarding to the HQLAX platform. Meanwhile, J.P. Morgan is in the process of becoming the third tri-party agent in the HQLAX operating model, alongside Clearstream Banking S.A. and Euroclear Bank. This will add another important custody/collateral location to the solution, further increasing collateral mobilisation efficiencies for participants.
Earlier this year, Deutsche Börse also acquired a third tranche of shares in HQLAX.
About the HQLAX operating model
The HQLAX operating model facilitates more efficient collateral management of high-quality liquid assets (HQLA) – which are in heightened demand under Basel III regulations – and it allows market participants to connect to the platform via existing, well established interfaces. The digital collateral registry layer 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 leading Eurex Repo F7-trading system where transactions are executed, the participating custodians/tri-party agents where the securities are deposited and the Deutsche Börse-owned Trusted Third Party (TTP) entity which connects the custodians/tri-party agents to the digital collateral registry.
HQLAX is a financial technology innovation firm that specialises in delivering liquidity management and collateral management solutions for institutional clients in the global securities lending and repo markets. www.hqla-x.com.
Foto credit: ‘Deutsche Börse AG’