Last week the Colombian stock market, Bolsa de Valores de Colombia (bvc), announced it is joining the Colibrí blockchain consortium and collaborating with fintech Contrato Marco. The latter is a technology specialist in managing collateral for OTC derivatives margin requirements.
OTC derivatives are the largest capital markets in the world. While stock markets are worth $90 trillion globally, the derivatives market is valued at more than $625 trillion, with about 86% of that traded off exchanges or over the counter (OTC).
Following the 2008 crisis, the Basel Committee and IOSCO brought in new margin rules for OTC derivatives, which started to phase in 2016, first applying to larger entities. Currently, organizations with month-end balances of more than €750 billion have to comply. Next year entities with balances above €50 billion fall into the rules.
At the moment, in Colombia the OTC margin process is relatively manual. Using distributed ledger technology (DLT) and hence sharing records can reduce the time to adjust collateral, thereby reducing risk for both parties.
“The agreement reached with bvc will allow us to show the market that in technology blockchain is the future of financial infrastructures, because it allows the creation of products and simpler, faster and more efficient processes for customers,” said Juan Manuel López, executive director of Contrato Marco.
Members of the Colibrí consortium include Porvenir, Skandia, Protección, Bancolombia, Banco BBVA, Fiduciaria Bancolombia, Santander CACEIS Colombia, Deceval, precia, Sophos Solutions, Gómez Pinzón Abogados, 2TransFair, and Contrato Marco.
Not mentioned in the announcement, the industry standards body, ISDA, has created a common domain model (CDM), which provides a standard for OTC derivatives workflows globally. While its application is not limited to blockchain, that has been the technology most commonly used.
Examples of blockchain derivatives solutions include Axoni’s DLT equity swap platform that’s used by Goldman Sachs and Citi. Recently UBS and ASX piloted a derivatives settlement solution with ISDA.