Nasdaq has developed a distributed ledger blockchain system that optimizes the use of securities as collateral for margin calls. A network is built between collateral givers, collateral takers, and intermediaries, and the system rapidly transfers collateral to central counterparties (CCP) round the clock.
The CEO of Nasdaq Clearing, Julia Haglind, 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.”
This blockchain system is especially necessary after 6pm CET when central banks and depositories close for the night, drastically decreasing EUR liquidity, leaving securities as one of the only options for collateral. In the past, securities have rarely been used since delivering securities is complex and inefficient, but with this new blockchain technology the securities collateral can be delivered and the margin call handled within minutes. Therefore, this new technology will make margin calls much more fluid after hours.
Nasdaq developed the distributed ledger blockchain technology and the network, and Euroclear’s Central Securities Depository processes transfers of collateral to ensure compliance with regulations and finality of settlement. EuroCCP, ABN AMRO Clearing, and Nasdaq Clearing wrote the code to integrate the new technology into their existing trading interfaces.
The CEO of EuroCCP, Diana Chan, 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.”
The global head of treasury at ABN AMRO, Coen van Walbeek, 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.”
This continues the trend of blockchain technology adoption across global financial markets. The immutable nature of distributed blockchain ledgers increases security and trustworthiness of data, and combined with ease of use blockchain technology makes transactions faster and more efficient.
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