Nasdaq, EuroCCP, Euroclear and ABN AMRO Clearing have teamed up to address challenges around the provision of collateral to central counterparties (CCPs) using blockchain technology.
The consortium has completed a proof of concept around the use of securities to cover margin calls, with a shared network that can be built between collateral givers, collateral takers and intermediaries.
Nasdaq developed the proof of concept for the distributed ledger technology (DLT) nodes, while ABN AMRO Clearing, Euro CCP and Nasdaq Clearing developed the front-end and managed integration into their own services.
Traditional collateral processes have been challenged in recent years due to extended trading hours and the need to centrally clear derivatives traded over-the-counter (OTC) under the European Market Infrastructure Regulation (EMIR).
A CCP margin call typically needs to be covered by euro collateral within a short time frame and options after hours are limited. The firms that completed the proof of concept explained that despite some CCPs allowing the use of securities to cover intraday initial margin calls, the method is rarely used, complex and inefficient.
“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,” said Diana Chan, CEO at EuroCCP. “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 that the concept demonstrates that a combination of new technology and the resilience of Central Securities Depository can work effectively and in full compliance with regulation.
Similarly, Coen van Walbeek, global head of treasury and SBL at ABN AMRO Clearing, commented that with faster and more globalised markets, it is essential for more efficient collateral processing.
“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,” Walbeek said.