Today OCC, the world’s largest equity derivatives clearing firm, announced a deal with New York enterprise blockchain startup Axoni. Together the aim is to replace the OCC security lending infrastructure with distributed ledger technology (DLT). OCC serves Nasdaq, the NYSE and CBOE.
The organization acts as a central counterparty (CCP) and guarantor between security lenders and borrowers, and as of the end of April, its equity security lending balance was $72 billion. According to industry body ISLA, the global securities lending balance at the end of 2018 was $2.4 trillion.
Work on the project is slated to start this quarter and will be rolled out in phases. The solution is permissioned, and because OCC is a central counterparty, it will operate the nodes that write transactions. This is similar to the Australian Securities Exchange (ASX) CHESS solution, which is also centralized. Clearing member firms can have peer nodes, but they are essentially read only.
Initially, the firms will have access to cleared stock transactions, and potentially participants will ultimately gain access to contract and activity information.
The key benefit of the solution comes in the shared ledger, which should eliminate the need to reconcile between parties. While the saving of accounting time sounds mundane, the dollar costs involved and the benefits of real-time visibility can be very significant.
“Our work with Axoni seeks to address industry challenges and reduce costs stemming from manual processes, lack of automation, and disparate systems. The new platform lays the foundation for a future-fit CCP securities lending model,” said Matt Wolfe, OCC Vice President, Securities Finance.
“The combination of technology and business expertise being applied to this project will generate a variety of benefits for industry stakeholders,” said Ishan Singh, VP of Solutions at Axoni.
Axoni is involved with other major U.S. equities projects. In February, it announced that 15 sell-side and buy-side firms went live on its DLT network for equity swap transactions. The first trade was between Citi and Goldman Sachs, which are both Axoni investors. And its technology Axcore is also being used by the DTCC in its credit derivatives Trade Information Warehouse (TIW) which is due to launch in the near future.
To date, Axoni has raised $59 million from the likes of JP Morgan, HSBC, Wells Fargo, and several venture capital firms.
But the OCC stock lending solution won’t be the first to use DLT. In Israel, the Tel Aviv Stock Exchange is readying for production with its stock lending platform based on enterprise blockchain Hyperledger Sawtooth.
In Europe, HQLAX and the Deutsche Börse also have a stock lending platform with numerous global banks, although the purpose is focused on collateral management.