R3, five of its member banks and financial resource management specialist HQLAX have built a collateral lending solution for liquidity transfers on R3’s Corda distributed ledger platform. CIBC, Commerzbank, Credit Suisse, ING, UBS and HQLAX collaborated with R3 to develop an operating model for a digital collateral receipt (DCR) lending marketplace.
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.”
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The banks say they will continue working to transform the proof-of-concept into a live pilot and subsequent production platform. For their part, R3 and HQLAx will also engage the regulators to showcase the prototype and receive feedback for shaping the final product.
Emmanuel Aidoo, Head of Blockchain and Distributed Ledger Technology Strategy at Credit Suisse, said: “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, added: “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.”