Deutsche Börse and HQLA^X 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 HQLA^X 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 HQLA^X 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 HQLA^X.”

The three pioneer banks, Commerzbank, Credit Suisse and UBS, have been working with HQLA^X since the start of this digital transformation initiative. “HQLA^X have come a very long way in a relatively short period of time,” said Guido Stroemer, CEO of HQLA^X.

“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, “HQLA^X 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 HQLA^X 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 HQLA^X 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 HQLA^X 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 HQLA^X platform. Meanwhile, J.P. Morgan is in the process of becoming the third tri-party agent in the HQLA^X 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 HQLA^X.