Today it was announced that blockchain settlement platform Fnality and DLT collateral management solution HQLAᵡ tested a repo transaction with Banco Santander, Goldman Sachs and UBS. Banks use repurchase transactions (repo) to ensure they have the appropriate amount of liquidity, but settlement usually takes two days. Enabling speedy settlement with on-chain money and collateral means that intraday repo transactions can be supported across multiple banks.
Fnality, backed by 17 major financial institutions, including Santander and UBS, will use settlement tokens backed by central bank money when it launches next year. Hence the proof of concept involved a simulation. By using cash on ledger, Fnality reduces risk by speeding up payment and removing the risk of commercial bank money. It has already been recognized as a systemically important payment system in the UK.
The collateral remained on the HQLAᵡ platform for the transaction, and the money stayed on Fnality. What changed was who owned the collateral and money on each platform. But the key is to enable delivery versus payment (DvP), so the transactions on each distributed ledger have to take place simultaneously and atomically.
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