Financial innovation firm R3, and its specialised financial resource management partnership, dubbed HQLAx, plus five big banks have built a collateral lending solution for liquidity transfers on R3's Corda distributed ledger platform.
Project participants CIBC, Commerzbank, Credit Suisse, ING, UBS and HQLAx collaborated with R3 to develop an operating model for a digital collateral receipt (DCR) lending marketplace. The model was built on R3's Corda platform, a financial grade distributed ledger that records, executes and manages institutions' financial agreements in perfect synchrony with their peers, said a statement.
The project demonstrated the ability to create a digital collateral receipt lending market, designed to help market participants redistribute liquidity more effectively and more cost efficiently; enhance regulatory transparency of collateral chains; and mitigate systemic risk by enabling orderly default unwinds.
The five project participants will continue working with R3 and HQLAx to transform the proof-of-concept into a live pilot and subsequent production platform. As part of the flight path from laboratory to production, R3 and HQLAx will engage the regulatory community to showcase the prototype and receive feedback for shaping the production ready platform.
David Rutter, CEO of R3, said: "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."
Guido Stroemer, CEO of HQLAx, said: "The collaborative effort and proactive engagement by the project participants was truly impressive, and the value proposition to help shape the target operating model of the HQLAx platform resonated strongly with the bank participants. This project is an excellent example of the R3 business model of testing use cases in its Lab and Research Centre in preparation for production ready deployment."
Thorsten Kanzler, divisional board member group treasury at Commerzbank, said: "The digital collateral receipt lending marketplace is an important step on our way to build up a digital Treasury product range. Once live, the lending place will support Commerzbank's treasury in managing regulatory requirements even more cost efficient by facilitating collateral transfers on a distributed ledger technology platform. Thereby it allows us to enhance our integrated financial resource management by linking an HQLA exchange to the overall liquidity management of Commerzbank."
Emmanuel Aidoo, head of blockchain and distributed ledger technology strategy at Credit Suisse, added: "We made many important discoveries during this experiment – first and foremost was the realisation 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."