Ricardo Esteves has seen business and economics through many lenses. He joined the Financial Services Industry in 2009, and has been a financial journalist since 2011. He holds a degree in Business Administration and has experience producing real-time news, from both buy-side and sell-side, as well as for retail traders, brokers and service providers. Esteves' work has appeared in a variety of online publications including FX Street and FinanceFeeds.
A joint proof of concept using blockchain developed by Nasdaq, ABN AMRO Clearing, EuroCCP, Euroclear, is set to make the use of securities more efficient when used to cover margin calls, including after business hours.
Addressing inefficiencies related to the current provision of collateral to Central Counterparties (CCPs), the distributed ledger technology solution has demonstrated that a shared, resilient network can be built between collateral givers, collateral takers, and intermediaries.
Recent market changes, such as extended trading hours by stock exchanges and the requirement to centrally clear derivatives traded bilaterally (OTC) under the European Market Infrastructure Regulation (EMIR), are some of the main causes for the inefficiencies of collateral processing.
While traditionally, a CCP margin call needs to be covered by euro collateral within a short time frame as regular hours of central banks and central securities depositories usually end at 18:00 CET, the blockchain solution may completely change the operational habits of the financial system. The consortium was able to handle the margin call, the securities collateral delivery and the return process within minutes.
Coen van Walbeek, Global Head of Treasury and SBL at ABN AMRO Clearing, commented:
“With a faster and more globalised market, it is essential to make the processing of collateral more efficient. Expanding the possibilities to use securities as collateral will make clearing through CCPs more attractive and cheaper for buy-side market participants. This is a breakthrough for the CCP model.”
Diana Chan, Chief Executive Officer at EuroCCP said:
“We are excited to be partnering on a proof of concept that is extremely useful for transactions that are not already well-served by market infrastructures. With a solution like this in place we will be able to efficiently provide counterparty risk protection of equity trades after hours while reducing operational complexities. Today we are limited by European banking hours or arrangements in other time zones.”
Walter Verbeke, Global Head of Business Model and Innovation at Euroclear, added:
“As a major collateral house, holding € 28.5 trillion worth of assets, we are pleased to participate in this initiative. It demonstrates that a smart combination of NewTech and the resilience of the Central Securities Depository can work effectively and in full compliance with regulatory requirements.”
Julia Haglind, Chief Executive Officer of Nasdaq Clearing, commented:
“As both a leading market technology provider and a CCP operator, Nasdaq is uniquely positioned to bring efficiencies to collateral management. We believe that blockchain technology brings with it a huge potential to transform markets everywhere, and this project is an excellent showcase of this.”
Today, trades are automated, and orders are executed in milliseconds or microseconds. Passive ETFs have proliferated, relying on algorithmic models to ensure the fund’s holding of shares properly weighted to whatever index or benchmark it’s tracking