Deutsche Börse and HQLAˣ, a financial technology innovation firm hosted at (and a member of) the Luxembourg House of Financial Technology (LHoFT), have announced the successful launch of their jointly developed Distributed Ledger Technology (DLT) solution for the securities lending market.
Commerzbank, Credit Suisse and UBS executed the first live transactions on the Deutsche Börse - HQLAˣ securities lending platform on the Eurex Repo F7-trading system.
As part of these transactions, ownership of a basket of German government bonds and a basket of corporate bonds was swapped between UBS and Commerzbank, both using Luxembourg-based Clearstream Banking S.A. as custodian. This was followed by a cross-custodian swap between UBS and Credit Suisse, in which ownership of a basket of corporate bonds at Clearstream Banking and a basket of German government bonds at Euroclear Bank was exchanged without the need for securities to be physically moved between the collateral agents. Instead, the change in ownership was recorded on the digital collateral registry, which is one of the four layers of the HQLAˣ operating model and was built on Corda Enterprise, the commercial distribution of R3's blockchain platform.
As Jens Hachmeister, Head of New Markets at Deutsche Börse, explained, the successful launch of the platform is considered an important milestone for the implementation of DLT in the securities lending market: "The go-live of the HQLAˣ operating model demonstrates the power of innovation that DLT is already bringing to the financial services industry. It proves how new technology can successfully be combined with trusted market infrastructure – and the positive reception of the model in the market speaks for itself".
The three pioneer banks, Commerzbank, Credit Suisse and UBS, have been working with HQLAˣ since the start of this digital transformation initiative. Commenting on this, Guido Stroemer, CEO of HQLAᵡ, said: "HQLAˣ have come a very long way in a relatively short period of time. The launch of our production platform is the culmination of strong collaboration, not only with our strategic partner Deutsche Börse, but also with R3 and several global banks with which we began our journey less than three years ago in an R3 lab".
Peter Schmidt, Co-Head, Repo Desk Treasury at Commerzbank, added: "HQLAᵡ delivers a fascinating approach to overcome the fragmented post-trading landscape. It enables treasury departments to manage their collateral pools more efficiently by significantly reducing the settlement cycle and avoiding resource-intensive collateral movements. It is a first but important step toward a new ecosystem where tokenised assets can be traded in a DLT environment".
All those involved emphasised their willingness to continue this collaboration with HQLAᵡ in the future.
In addition to Commerzbank, Credit Suisse and UBS, over fifteen market participants, including CIBC, Citi, Goldman Sachs and ING, are currently engaged in different phases of onboarding to the HQLAᵡ platform. Meanwhile, J.P. Morgan is in the process of becoming the third tri-party agent in the HQLAᵡ operating model, alongside Clearstream Banking and Euroclear Bank. This will add another custody/collateral location to the solution, further increasing collateral mobilisation efficiencies for participants.