Deutsche Bourse has increased its stake in HQLAx, the liquidity and collateral management outfit with which it is building a blockchain-based front-to-back operating model for securities lending.
Deutsche Bourse acquired its first "single-digit euro million" stake in HQLAx in August last year. The new investment comes as the German exchange reports "significant progress' with the project, with six banks preparing to join the platform, which is expected to go live in the first half of 2019.
Unlike in traditional settlement, there will be no actual movement of securities between custody accounts on the HQLAx target operating model. Instead, tokens will be transferred while the underlying securities will be kept off-blockchain and remain static. This helps market participants to redistribute liquidity more efficiently by providing collateral mobility across systems and locations.
Clearstream will act as custodian as the Bourse conducts discussions with other post-trade service providers to participate.
The platform will be accessed via Deutsche Bourse’s Eurex Repo trading system. A trusted third party layer will be the interface between the distributed ledger technology (DLT) and legacy securities infrastructure using triparty collateral management services.
Jens Hachmeister, in charge of blockchain initiatives across Deutsche Bourse Group, comments: “This blockchain use case reveals the significance and potential of the technology. This creates higher liquidity, transparency and efficiency for financial markets in general and securities financing in particular. We look forward to applying DLT for further solutions along the whole value chain.”
Deutsche Bourse has been actively exploring potential applications of distributed ledgers and implications of crypto-assets, including co-operation with international central securities depositories on the use of distributed ledgers and smart contracts for mobilising scarce collateral, as well as the joint development of a functional prototype for the blockchain technology-based settlement of securities with Deutsche Bundesbank.