‘Liquidity Alliance’ builds blockchain solution for cross-border collateral transfer

Four members of the ‘Liquidity Alliance’ (LA), an international group of central securities depositories (CSDs), are cooperating with Deutsche Börse to launch an initiative leveraging blockchain technology to ease cross-border mobilisation of security collateral. With the planned solution, The Canadian Depository for Securities Limited (CDS), Clearstream (Luxembourg), Strate (South Africa) and VPS (Norway) want to overcome existing hurdles when moving collateral across various jurisdictions, making the transfer faster and more efficient.

Following the financial crisis, regulators increasingly require market participants to provide collateral to mitigate risks in the financial system. The Dodd-Frank Act in the U.S. and EMIR in the EU are two important frameworks in this regulatory overhaul leading to a growing demand for high-quality collateral to which access is limited. CSDs are already supporting the market today with real-time collateral management to ensure that exposures can be covered sufficiently and that local collateral can be quickly transferred where it is needed.

Being jointly provided by regulated market infrastructures, the Distributed Ledger Technology (DLT) based ‘LA Ledger’ prototype will enable a centralised, faster and more efficient allocation of fragmented security positions to cover financial obligations of market participants in multiple jurisdictions. The decentralized character of DLT (blockchain) allows for direct interaction between participants giving it the potential to simplify complex processes.

The ‘LA Ledger’ will initially be implemented as a prototype based on the Hyperledger Fabric blockchain. Validation by regulatory authorities and market participants will start in the second quarter of 2017.

“With this initiative, we pursue an innovative partnership approach that will allow us to jointly embark on distributed ledger technology with a use-case that is highly relevant to the wider industry”, said Glenn Goucher, President and Chief Clearing Officer, CDS.

“LA Ledger is designed to simplify cross-border collateralisation away from using multiple complex and non-standardised links towards smooth movement across various jurisdictions”, added John-Arne Haugerud, CEO VPS.

“We look forward to engaging with regulators and market participants to validate the proposed solution”, added Monica Singer, CEO Strate. “We are convinced that integrating this new technology into a permissioned environment of neutral regulated entities is the right way forward.”

“We are proud to be part of this exciting LA Ledger initiative which is adding another leading edge solution to our award-winning suit of collateral management services to the benefit of our mutual clients”, commented Philippe Seyll, Co-CEO Clearstream Banking S.A. at Deutsche Börse Group

 

 

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