A group of industry stakeholders has developed a blockchain platform to transfer collateral to central counterparties when trading securities.
Stock exchange operator Nasdaq announced Tuesday that its clearing arm, along with securities services provider ABN AMRO Clearing and financial services firms EuroCCP and Euroclear, have developed a joint proof-of-concept (PoC) blockchain platform.
The aim, according to a press release, is to cover margin calls – a need to deposit funds or securities to cover potential losses – through a distributed network among collateral givers, takers and intermediaries,
According to the announcement, Nasdaq developed the PoC for the distributed network, while ABN AMRO Clearing and EuroCCP created a front-end interface and managed integration into the services.
Further, Euroclear, one of the world’s largest settlement houses, processed the underlying collateral transfers, ensuring the settlement was final and monitoring regulatory compliance.
The current collateral processing has been challenged by several market changes like extended trading hours and the need to centrally clear derivatives traded over the counter under the European Market Infrastructure Regulation (EMIR), the release said.
Due to an increasing amount of buy-side market players, such as money managers at hedge funds and institutional firms who want to clear their derivatives trades, the need to provide an efficient securities collateral solution has become essential. In particular, these firms need to cover margin calls despite operating in different time zones.
The innovative development using the PoC would allow market participants “to handle the margin call, the securities collateral delivery and the return process within minutes.”
EuroCCP chief executive Diana Chan said the PoC can be “extremely useful” in fulfilling this requirement, explaining:
“With a solution like this in place we will be able to efficiently provide counterparty risk protection of equity trades after hours while reducing operational complexities. Today we are limited by European banking hours or arrangements in other time zones.”
Nasdaq image via Shutterstock