Today the Spanish stock exchange Bolsa de Madrid (BME) and investment company Renta 4 Banco announced they have completed a test for digitizing certificates used for collateral pledges.
To cover the end-of-day settlement, it’s normal for a central counterparty, in this case BME clearing, to require collateral deposits. In the proof of concept (PoC), instead of exchanging physical certificates, the process was digitized for pledges required to cover Renta 4 Banco customer positions. All parties had access to the data in real-time. The BME says it reduced the duration of the whole process by 80%.
“DLT technology allows us to reduce times drastically and improve the operation and control of the system, providing legal certainty for electronically generated certificates and maintaining privacy and compliance with the General Data Protection Regulation, ” said Berta Ares, head of digital transformation, BME.
The BME’s DLT-lab developed the PoC in collaboration with regulators. The organizations involved in the project were BME Clearing, the Spanish central securities depository IBERCLEAR and Renta 4 Banco. The aim is for the system to go live by the end of the year.
BME’s blockchain is a private permissioned network that uses Hyperledger Fabric. A feature of Fabric is channels which are like mini blockchains which each have restricted access. So two institutions might have a channel where only they have permission to update and access data, thereby ensuring privacy. Additionally, smart contracts developed by BME manage the business logic.
Another major collateral project is HQLAX. Banks are required to keep sufficient holdings of High-Quality Liquid Assets (HQLA) which can be quickly sold. HQLAX which is backed by the Deutsche Bourse, is targeting the Eurex Repo electronic trading market. It aims to record the ownership of a basket of securities using distributed ledger technology, in this case, R3’s Corda technology.
This article has been updated with details about the technology used.