Nasdaq Successfully Trials Blockchain-Based Margin and Security Option

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Nasdaq has successfully completed a proof of concept to increase the efficiency of the use of securities when used to cover margin calls using distributed ledger technology. The initiative was carried out in partnership with three other stakeholders, the stock exchange announced in a press release on June 19. The platform increased the efficiency of the process, with Nasdaq revealing that the involved parties were able to handle the margin call, the securities collateral delivery, and the return process within minutes.

Project Showcases Blockchain’s Potential

The development of the platform was necessitated by the inefficiencies encountered in the provision of collateral to central counterparties, the press release explained. A central counterparty (CCP) is a third-party entity that reduces the operational, settlement and legal risks for traders, ensuring that the terms of a trade are adhered to even if one party defaults. With the regulations in Europe rapidly changing, the industry has encountered great challenges as it seeks to reduce the amount of time taken to cover a CCP margin call.

Blockchain technology has proven that it can eliminate these challenges, with its decentralized nature ensuring that the collateral givers, the collateral takers, and the CCP intermediary can freely share information in real time. The platform reduced the time taken to complete the entire process to just a few minutes, with the participants able to optimize their collateral positions through a built-in dashboard.

The platform was developed in partnership with leading equities trading platforms, one of which is the Euroclear Group. Having settled over€700 trillion in securities transactions in 2017 and with€28 trillion in assets, the Euroclear Group is a leading post-trade services provider. One of the other partners is EuroCCP, a clearinghouse that manages counterparty risk for trading firms and which is partly owned by Nasdaq. ABN Amro Clearing also participated in the pilot. ABN is a leading securities services provider, executing over 16 million trades daily and servicing clients on over 160 exchanges.

ABN hailed the platform as a breakthrough for the industry. Its Global Head of Treasury, Coen van Walbeek, noted:

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.

The CEO of EuroCCP, Diana Chan, was just as excited about the platform, saying that it would be very useful to a market that is not well-served by existing technology. The market participants have been limited by the European banking hours, but the platform gives them an opportunity to provide their services after hours, all while reducing operational complexities, she said.

Executives at Euroclear and Nasdaq also praised the platform, saying that it was proof that the blockchain could be integrated into the existing processes successfully while remaining in full compliance with the regulatory requirements. Julia Haglind, the CEO of Nasdaq Clearing, stated:

WE BELIEVE THAT BLOCKCHAIN TECHNOLOGY BRINGS WITH IT A HUGE POTENTIAL TO TRANSFORM MARKETS EVERYWHERE, AND THIS PROJECT IS AN EXCELLENT SHOWCASE OF THIS.

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