SLC: DLT demand to grow in securities lending
21 January 2019 London
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There is a broad interest in making use of distributed ledger technology (DLT) in the securities lending markets and across financial markets more broadly, the Securities Lending Committee of Bank of England noted in their September 2018 meeting.
As part of the meeting, Nina Moylett asked presenters to discuss the impact and outlook on technology with regard to securities lending.
Members briefly discussed the importance of limiting any risk that the widespread adoption of one single DLT solution by the market could pose a ‘single point of failure’ risk.
During TradingApps’ presentation, they noted that their intention is to use DLT to provide a ‘single version of the truth’ underpinning the settlement, billing, and reporting aspects of securities lending transactions.
They added that the product aims to simplify the post-trade operational process due to this transaction record shared by counterparties.
Meanwhile, other participants in the meeting making presentations included HQLAx and WeMatch. HQLAx noted that their intention is to remove the need for settlement of the collateral itself in a transaction.
HQLAx employs DLT technology and the transfer of ‘tokens’, which represent an underlying basket of collateral, via this channel.
According to HQLAx, the initial focus of the product would fall on collateral versus collateral transactions.
Collateral management, including title transfer following the exchange of tokens, takes place within a third-party custodian.
HQLAx highlighted in their presentation that a proof of concept test trade, including reuse of collateral by a counterparty to the transaction, has taken place on the platform.
WeMatch noted in their presentation that their intention is for participants to upload their interest on the bid and offer side against specific securities, essentially providing a matching platform.
Additionally, an algorithm is used to find and suggest ‘matches’, which may be suitable for certain participants on the platform.
It may also assist in the provision of evidence for best execution, although the agent lender retains ultimate responsibility, WeMatch revealed.
Committee members noted that the theme of the presentations was to improve the efficiency of the existing operational aspects of the securities lending market rather than connecting a broader set of counterparties to the securities lending market.
In addition, Moylett welcomed Krishan Chada to the committee as a new member.
As part of the meeting, Nina Moylett asked presenters to discuss the impact and outlook on technology with regard to securities lending.
Members briefly discussed the importance of limiting any risk that the widespread adoption of one single DLT solution by the market could pose a ‘single point of failure’ risk.
During TradingApps’ presentation, they noted that their intention is to use DLT to provide a ‘single version of the truth’ underpinning the settlement, billing, and reporting aspects of securities lending transactions.
They added that the product aims to simplify the post-trade operational process due to this transaction record shared by counterparties.
Meanwhile, other participants in the meeting making presentations included HQLAx and WeMatch. HQLAx noted that their intention is to remove the need for settlement of the collateral itself in a transaction.
HQLAx employs DLT technology and the transfer of ‘tokens’, which represent an underlying basket of collateral, via this channel.
According to HQLAx, the initial focus of the product would fall on collateral versus collateral transactions.
Collateral management, including title transfer following the exchange of tokens, takes place within a third-party custodian.
HQLAx highlighted in their presentation that a proof of concept test trade, including reuse of collateral by a counterparty to the transaction, has taken place on the platform.
WeMatch noted in their presentation that their intention is for participants to upload their interest on the bid and offer side against specific securities, essentially providing a matching platform.
Additionally, an algorithm is used to find and suggest ‘matches’, which may be suitable for certain participants on the platform.
It may also assist in the provision of evidence for best execution, although the agent lender retains ultimate responsibility, WeMatch revealed.
Committee members noted that the theme of the presentations was to improve the efficiency of the existing operational aspects of the securities lending market rather than connecting a broader set of counterparties to the securities lending market.
In addition, Moylett welcomed Krishan Chada to the committee as a new member.
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