Chicago-based OCC, the world’s largest equity derivatives clearing organization, has joined forces with Fintech startup Axoni to provide a distributed ledger technology framework to replace its existing securities lending infrastructure.
Axoni, which develops blockchain solutions for the big banks, will provide infrastructure and smart contract applications for cleared stock loan transactions governed by OCC. The partnership involves AxCore, Axoni’s distributed ledger protocol, which will be deployed through a number of phases, with a vision to establish a DLT network for derivatives, with peer nodes at participating firms.
The solution will enable OCC and its clients to streamline, automate, and reduce the cost of derivatives processing by eliminating the need for redundant processing capabilities and the associated reconciliation costs.
“Our work with Axoni seeks to address industry challenges and reduce costs stemming from manual processes, lack of automation, and disparate systems. The new platform lays the foundation for a future-fit CCP securities lending model,” said Matt Wolfe, OCC Vice President, Securities Finance.
OCC has been operating stock loan programs for 27 years, acting as the principal counterparty to both the borrower and lender in the transaction.
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Streamlining securities lending has emerged as one of the classic use cases for blockchain in the financial services market. Multiple stock loan participants, including custodian banks BNY Mellon and State Street, are testing similar prototypes. Earlier this year, the Tel Aviv Stock Exchange partnered with Blockchain Technology Partners (BTP) to provide ongoing support for TASE’s Blockchain Securities Lending (BSL) platform.
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Axoni helps banks and other institutions develop blockchain software to run capital markets processes such as trade affirmations in the reference data arena and the over-the-counter (OTC) equity swaps segment.
Several of the banks have been involved in pilot projects and proofs of concept to test Axoni’s platform for processing trades and managing the life cycle of derivatives, and the company is currently involved in three projects that are moving from the pilot stage into production.
Over the past three years, it has run a number of high-profile experiments with some of the financial industry’s largest players, in areas such as post-trade processing of credit default swaps and foreign exchange. The deployments validate how distributed ledger technology can streamline multi-party workflows, reduce reconciliation costs, and provide greater transparency to financial markets.
“Deploying distributed ledger technology in production at this scale will be a significant moment for the securities lending industry. The combination of technology and business expertise being applied to this project will generate a variety of benefits for industry stakeholders. We look forward to working with OCC to bring those benefits to the market,” added Ishan Singh, Vice President of Solutions at Axoni.