Deutsche Börse Group and HQLAX agreed on a strategic partnership to launch a securities lending solution. This follows the first live transaction on HQLAX by Credit Suisse and ING four weeks ago.
The HQLAX system uses R3’s Corda technology. This latest agreement highlights how many organizations are hedging their technology bets. The Deutsche Börse is also an investor in Digital Asset which uses a different technology platform and is working on replacing the Australian Stock Exchange’s settlement system, CHESS.
Banks have to hold sufficient High-Quality Liquid Assets (HQLA), to ensure liquidity in the financial system. March’s Basel III Monitoring Report estimates the global banking industry holdings of HQLA at Euro 11.95 trillion.
For a long time, the securities lending market has played a crucial role in the management of HQLA portfolios. However, the market is fragmented. For example, in Europe, there are forty central securities depositories (CSD). And in conventional securities lending transactions, the securities are transferred between custody accounts.
In the HQLAX system, legal title transfer of a basket of securities will be done through a transfer of ownership of an HQLAX Digital Collateral Record (DCR). The underlying securities will be unchanged within DCR-linked custody accounts.
Philippe Seyll, Executive Manager at Deutsche Börse Group, commented: “With the creation of a neutral custody agnostic control layer, Deutsche Börse is embracing distributed ledger technology and complements it with a neutral and trusted market infrastructure role open to multiple custodians and collateral agents. This way Deutsche Börse supports market participants to deal with the global regulatory framework whilst reaping the benefits of the leading edge distributed ledger technology.”
The trading layer will be delivered exclusively by Deutsche Börse’s Eurex Repo platform. Deutsche Börse Group will also assume a lead role in the custody agnostic, post-trade processing layer, which is designed to interoperate with multiple collateral agents and custodians.
Guido Stroemer, CEO of HQLAX, commented: “Our goal is to mobilize liquidity across pools of collateral currently residing in disparate custody accounts around the globe. We look forward to further collaboration with the broader community of collateral agents and custodians.”
Deutsche Börse is a relatively early adopter of blockchain technology. They launched a prototype settlement system with Deutsche Bundesbank in 2016.