Eurex Clearing, one of the world’s largest derivatives clearing houses, now supports DLT-based collateral for margin purposes in a production environment. In January Deutsche Börse subsidiary Eurex received approval for the digital collateral solution via a no action letter from German regulator BaFin. The key innovation is collateral mobility enabled via the HQLAX DLT platform. At the end of last year Eurex held around $70 billion in initial margin. As of this June the notional volume outstanding was €43 trillion ($50.6tr).
Providing securities as collateral in a conventional environment requires transferring them from the clearing member’s custodian to the clearing house’s custodian. That involves a significant delay, and cannot happen out of hours.
By contrast, with HQLAX the collateral is immobilized with the original custodian, creating an entry in the digital collateral registry. That makes it possible for a clearing member to instantly transfer the digital collateral to Clearstream Banking Luxembourg. Clearstream is a sister company of Eurex that acts as the sub custodian.
The platform has attracted major industry players as participants. The largest European tri-party agents and custodians have integrated with the HQLAX platform, including Clearstream, Euroclear, BNY, BNP Paribas, Citi and JP Morgan.
While technically HQLAX does not use tokenization, the effect is similar to many of the tokenized collateral initiatives currently underway around the world. Other clearing houses in the planning and preparation phases include the CME, DTCC and ICE.
