Deutsche Börse subsidiary Eurex Clearing has received a non objection letter from German regulator BaFin allowing it to use digital collateral recorded on the HQLAᵡ DLT platform for margin purposes. Hence, this allows institutions to meet margin requirements almost immediately, without the need to liquidate securities to raise cash. JP Morgan will be the first to pilot the solution, which will launch in the second quarter of this year.
Some have argued that this type of collateral mobility could have prevented the 2022 UK gilts crisis, when insurers had to stump up margin in the face of falling UK government bond (gilts) prices. Instead of posting more gilts as collateral – as they could with a solution such as HQLAᵡ – they had to post cash by selling the gilts, creating a downward price spiral. Hence, the key advantage of collateral mobility is the risk reduction as well as the speed and cost savings.
HQLAᵡ works by freezing collateral at custodians and creating a record in the DLT-based digital collateral registry. This allows the ownership of the collateral to be updated and transferred immediately, rather than waiting for two day settlement windows. Technically this is not tokenization.
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