5 April 2017 (New York/London/Singapore) – Financial innovation firm R3, five of its members and financial resource management specialist HQLAᵡ have built a collateral lending solution for liquidity transfers on R3’s Corda distributed ledger platform.
Project participants CIBC, Commerzbank, Credit Suisse, ING, UBS and HQLAᵡ collaborated with R3 to develop an operating model for a digital collateral receipt (DCR) lending marketplace. The model was built on R3’s Corda platform, a financial grade distributed ledger that records, executes and manages institutions' financial agreements in perfect synchrony with their peers.
The project demonstrated the ability to create a digital collateral receipt lending market, designed to achieve the following benefits:
- Help market participants redistribute liquidity more effectively and more cost efficiently
- Enhance regulatory transparency of collateral chains
- Mitigate systemic risk by enabling orderly default unwinds
The five project participants will continue working with R3 and HQLAᵡ to transform the proof-of-concept into a live pilot and subsequent production platform. As part of the flight path from laboratory to production, R3 and HQLAᵡ will engage the regulatory community to showcase the prototype and receive feedback for shaping the production ready platform.
David E.Rutter, CEO of R3, commented: “The implementation of new bank regulations for liquidity, mandatory clearing, and margin requirements for OTC derivatives has caused a significant increase in demand for high quality liquid assets. As a result, there is a heightened need for a marketplace that facilitates large scale, cost efficient collateral transfers across the global financial ecosystem, and Corda exceeded the most demanding requirements.”
Guido Stroemer, CEO of HQLAᵡ, commented: “The collaborative effort and proactive engagement by the project participants was truly impressive, and the value proposition to help shape the target operating model of the HQLAᵡ platform resonated strongly with the bank participants. This project is an excellent example of the R3 business model of testing use cases in its Lab and Research Centre in preparation for production ready deployment.”
Robin Green of CIBC Capital Markets comments: “We are excited to be involved in the development of a novel way to represent and exchange financial assets which has the potential to greatly improve market efficiency and reduce systemic risk. We look forward to taking this concept into the pilot and developing this innovative idea further.”
Thorsten Kanzler, Divisional Board Member Group Treasury at Commerzbank, commented: “The digital collateral receipt lending marketplace is an important step on our way to build up a digital Treasury product range. Once live, the lending place will support Commerzbank’s treasury in managing regulatory requirements even more cost efficient by facilitating collateral transfers on a distributed ledger technology platform. Thereby it allows us to enhance our integrated financial resource management by linking an HQLA exchange to the overall liquidity management of Commerzbank.”
Emmanuel Aidoo, Head of Blockchain and Distributed Ledger Technology Strategy at Credit Suisse, comments: “We made many important discoveries during this experiment – first and foremost was the realization that a blockchain-enabled marketplace for trading digital collateral receipts allows participants to redistribute liquidity more cost effectively and efficiently while enhancing regulatory transparency of collateral chains. This ultimately helps to mitigate systemic risk by enabling orderly default unwinds.”
Ivar Wiersma, Head of Wholesale Banking Innovation at ING, comments: “In line with our culture and our strategy, ING is eager to continue to collaborate and pursue this forward-thinking opportunity to progress HQLAᵡ to a live pilot phase, in line with our ambition to get distributed ledger technology out of the lab, and delivering tangible business value. This solution could provide bank treasurers with a new supply of non-cash collateral and offer more cost efficiency by optimizing balance sheet usage and liquidity management. Also, it can mitigate operational risks associated with securities delivery across fragmented securities systems.”
Gareth Allen, Global Head of Asset Sourcing & Optimization – Group ALM at UBS, comments: “Developing an operating model for a digital collateral receipt lending marketplace has the potential to be of real benefit to market participants. There's still plenty to do, but collaborating with HQLAᵡ and our peers – through R3 – to explore and drive efficiencies in the HQLA process is the right way to take this project from a proof-of-concept to live pilot, and possibly beyond.”
R3 is leading a consortium with over 80 of the world’s largest financial institutions to develop ground-breaking commercial applications for the financial services industry that leverage the appropriate elements of distributed and shared ledger technology.
Operating in New York, London and Singapore, the R3 team is made up of financial industry veterans, technologists, and new tech entrepreneurs, bringing together expertise from electronic financial markets, cryptography and digital currencies.
The R3 Lab and Research Centre has quickly become a centre of gravity for collaborative research and testing of distributed and shared-ledger inspired technologies, and is where R3 works with its partners to define, design and deliver the next generation of financial infrastructure.
HQLAᵡ, a partnership of financial market veterans and R3, is a financial innovation firm that specializes in providing financial resource management solutions to market participants.
Nick Warren/Nick Murray-Leslie
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