Deutsche Bundesbank and Deutsche Boerse back collateral management DLT
24 January 2020 Frankfurt
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Deutsche Bundesbank and Deutsche Boerse have presented the results of a joint study on the use of distributed ledger technology (DLT) for collateral management, which outlines opportunities for cost-cutting and increased asset mobility.
Using DLT for collateral management purposes can provide significant additional opportunities to improve collateral optimisation and overcoming existing process deficiencies, the entites’ report states.
The study is based upon two joint research projects on securities settlement on DLT, known as project BLOCKBASTER. According to the report, the two prototypes support the settlement of securities transactions, payments, interest payments and redemptions.
“Even though considerable challenges exist, DLT has the potential to significantly change the current post-trade environment,” the report states.
“Using DLT for collateral management has important advantages for the collateral taker and the collateral giver as the underlying operating model no longer requires securities to be moved across custodians, thus enabling 24/7 availability of collateral and improving collateral fluidity."
The report goes on to argue that the main challenge lies in designing DLT solutions which fit seamlessly in the current regulatory, process and system landscape and provide instant benefits for market participants. This is largely due to the fact that most market participants are unlikely to abandon the existing post-trade infrastructure in favour of a DLT solution.
“From the perspective of the Deutsche Bundesbank, collateral management is fundamentally important for the operational management of monetary policy. DLT-based solutions for collateral management have the potential to increase efficiency in this area by improving the availability of collateral,” says Burkhard Balz, executive board member at the Deutsche Bundesbank.
Based on the positive initial results, both entities have confirmed they will be continuing their venture in researching the capabilities offered by securities settlement based on DLT technology.
Using DLT for collateral management purposes can provide significant additional opportunities to improve collateral optimisation and overcoming existing process deficiencies, the entites’ report states.
The study is based upon two joint research projects on securities settlement on DLT, known as project BLOCKBASTER. According to the report, the two prototypes support the settlement of securities transactions, payments, interest payments and redemptions.
“Even though considerable challenges exist, DLT has the potential to significantly change the current post-trade environment,” the report states.
“Using DLT for collateral management has important advantages for the collateral taker and the collateral giver as the underlying operating model no longer requires securities to be moved across custodians, thus enabling 24/7 availability of collateral and improving collateral fluidity."
The report goes on to argue that the main challenge lies in designing DLT solutions which fit seamlessly in the current regulatory, process and system landscape and provide instant benefits for market participants. This is largely due to the fact that most market participants are unlikely to abandon the existing post-trade infrastructure in favour of a DLT solution.
“From the perspective of the Deutsche Bundesbank, collateral management is fundamentally important for the operational management of monetary policy. DLT-based solutions for collateral management have the potential to increase efficiency in this area by improving the availability of collateral,” says Burkhard Balz, executive board member at the Deutsche Bundesbank.
Based on the positive initial results, both entities have confirmed they will be continuing their venture in researching the capabilities offered by securities settlement based on DLT technology.
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