Broadridge
Paul Chiappetta
18 February 2025
Paul Chiappetta, managing director, Digital Innovation, Capital Markets, Broadridge, looks at how distributed ledger technology is bringing efficiency and cost-savings to repo transactions
Image: Paul Chiappetta
The US$10 trillion repo market is essential to the effective functioning of global capital markets. Broadridge’s Distributed Ledger Repo (DLR) platform is currently used by some of the world’s biggest banks and broker-dealers to process some US$1.5 trillion in transactions every month.
Multiple applications are being launched on the platform, including applications used by sell side institutions to manage liquidity on their balance sheets and create efficiencies in operational workflows such as sponsored repo and agency clearing model (ACM) processes.
In October 2024, Broadridge began working with DTCC’s subsidiary, the Depository Trust Company (DTC), to custody treasury assets during the settlement window of DLR’s repo trades. Major securities finance trading venues like Tradeweb, GLMX, and CME Group’s Brokertec Quote, have also signed on to execute trades on Broadridge’s DLR platform.
With this complete ecosystem of some of the industry’s biggest and most-respected players in place, distributed ledger technology (DLT)-enabled repo trades can now begin spreading through the broader market. This could happen rapidly, because the introduction of DLT does much more than simply adding efficiency to traditional repo trades.
Unlocking intraday repo
In a textbook example of the potential of digital assets and smart contracts to revolutionise the way people transact, the DLR platform achieves something market participants have long desired but were unable to accomplish due to limitations in traditional methods for executing and settling trades. DLT unlocks the ability to conduct intraday repo trades that could save banks, brokers and other market participants millions of dollars each year.
To understand how DLR could deliver these cost savings, it’s necessary to back up a step and look at how financial service firms use repo trades. In general, banks, brokers and other sell side firms use repo transactions to access liquidity. Over the course of a day, these institutions’ balance sheets experience huge cash inflows and outflows as part of normal business operations. Sometimes, these swings result in cashflow deficits. As a result, every day the sell side pays millions of dollars in ‘daylight overdraft’ fees to the US Federal Reserve. Firms use repo trades to access short-term liquidity to cover cashflow shortfalls and avoid these fees.
There is one snag in this process. Usually, cashflow deficits exist for hours, or even just minutes. But the traditional market structure makes it virtually impossible to execute and settle a trade that quickly. In fact, it’s almost impossible to settle trades on the same day. As a result, firms’ only option is to use and pay for overnight repo transactions, when they really only need the liquidity for a much shorter period of time.
DLR fixes this problem by making intraday repo trades a reality. The platform tokenises repo contracts and uses smart contracts to enable synchronous workflows that compress the trade processing and settlement process far beyond anything possible using traditional methods. Using intraday repo through the DLR platform, financial service firms who need liquidity to cover a two hour cash deficit can execute and settle a trade that lasts exactly two hours. No more overdraft fees. No more paying for unneeded overnight repo trades. By eliminating the need for unnecessary overnight repo trades, DLR also creates another huge benefit: a significant reduction of counterparty and operational risk.
The path forward
These benefits make DLT-enabled repo trades a no-brainer for the sell side. In turn, growing sell side demand for intraday trades has the potential to create a new and growing source of revenue for buy side firms who provide liquidity.
The creation and growth of the DLR platform is an almost perfect case study for how DLT can transform and improve markets and transactions. In a repo market made up of millions of individual bilateral transactions executed through mostly manual processes, DLR creates a standardised approach that accelerates transaction times and dramatically reduces operational costs and risks.
That’s a blueprint that can be applied to thousands of marketplaces and millions of transactions around the world.
As institutional momentum toward blockchain grows, DTCC and Broadridge look forward to continuing to partner with the industry to help market participants capture the benefits of tokenisation — which stand to transform many areas of traditional finance, including securities financing, collateral management, and cross-border settlement.
However, before broader adoption can continue, the same level of standards and controls that underpin today’s traditional markets will be needed to support a robust and resilient digital ecosystem. Moving forward, continued collaboration will be vital as the industry works through challenges that lie along the road to standards — including interoperability, data harmonisation, and the custody and tokenisation of traditional assets that have a digital twin.
Throughout 2025, as technology providers and market participants continue working through these challenges, the resulting DLT solutions might start transforming markets much sooner than you think.
← Previous interview
Japan Securities Finance
Kenta Yamamoto and Kohei Takeda
Next interview →
Japan Securities Finance
Kei Hashimoto
