Blockchain trialed by Nasdaq resolves margin calls ‘in minutes’
Blockchain platform is developed by a group of industry stakeholders to transfer collateral to central counterparties when trading securities. Stock operator Nasdaq announced that it is clearing arm with the security providers ABN AMRO Clearing and financial services firms EuroCCP and Euroclear has developed a joint proof-of-concept (PoC) blockchain platform and distributed ledger technology.
According to the press release of Nasdaq, the main target is to cover margin calls using blockchain– a need to deposit funds or securities to cover potential losses – through a distributed network among collateral givers, takers, and intermediaries.
When an investor who has a margin account with a brokerage firm is required to deposit extra financial resources in order to satisfy a maintenance margin- a minimum amount of equity that acts as a collateral potential losses, in this way margin calls are made.
Based on the announcement made by the World’s 2nd largest stock exchange company based out of US, Nasdaq has designed and developed the proof of concept for the network which is distributed. While ABN AMRO Clearing and EuroCCP made a front-end interface and managed integration into the services.
As an outcome of recent market changes such as extended trading hours by stock exchanges and the requirement to centrally clear derivatives traded bilaterally (OTC)
The inefficiencies of collateral processing have been highlighted as a result of recent market variation such as extended trading hours by stock exchanges and the requirement to centrally clear derivatives traded bilaterally (OTC) under the European Market Infrastructure Regulation (EMIR). Today, a CCP margin call typically needs to be covered by euro collateral within a short time frame.
The underlying collateral transfers were processed by Euroclear’s Central Securities Depository, ensuring settlement finality and regulatory compliance.
Nasdaq developed the proof of concept for the DLT nodes while ABN AMRO Clearing, EuroCCP and Nasdaq Clearing developed a specific front-end and managed integration into their own environments.
Coen van Walbeek, Global Head of Treasury and SBL at ABN AMRO Clearing said, “With a faster and more globalized market, it is essential to make the processing of collateral more efficient. Expanding the possibilities to use securities as collateral will make clearing through CCPs more attractive and cheaper for buy-side market participants. This is a breakthrough for the CCP model.”
Diana Chan, CEO at EuroCCP said, “We are excited to be partnering on a proof of concept that is extremely useful for transactions that are not already well-served by market infrastructures. With a solution like this in place, we will be able to efficiently provide counterparty risk protection of equity trades after hours while reducing operational complexities. Today we are limited by European banking hours or arrangements in other time zones.”
Walter Verbeke, Global Head of Business Model and Innovation at Euroclear added, “As a major collateral house, holding € 28.5 trillion worth of assets, we are pleased to participate in this initiative. It demonstrates that a smart combination of NewTech and the resilience of the Central Securities Depository can work effectively and in full compliance with regulatory requirements.”
Julia Haglind, CEO of Nasdaq said, “As both a leading market technology provider and a CCP operator, Nasdaq is uniquely positioned to bring efficiencies to collateral management. We believe that blockchain technology brings with it a huge potential to transform markets everywhere, and this project is an excellent showcase of this.”
Image via Nasdaq
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