Nasdaq blockchain breakthrough streamlines collateral processing

US exchange Nasdaq and banks ABN Amro Clearing, EuroCCP and Euroclear have announced a joint proof of concept (PoC) solution to the problem of counterparty risk, cracking an inefficiency in the securities market.

Nasdaq successfully tested blockchain Proof of Concept for a securities collateral solution Source: Shutterstock.com

Nasdaq said in a release on Tuesday that blockchain, which they successfully tested, was effective in bringing about efficiencies in the processing of collateral. The blockchain platforms resolves issues stemming from exchanges’ extended trading hours and the European Market Infrastructure Regulation requirement to centrally clear bilateral OTC securities.

After regular hours for central banks and central securities depositories, Central Counterparties (CCPs) encountered difficulties and limitations when it came to margin calls covered by euro collateral for a short period after closing hours.

Although several CCPs currently allow for the use of securities to cover intraday (evening) initial margin calls, it was rarely applied due to inefficient and complex securities delivery processes.

Strengthened collateral

The now strengthened network between collateral givers, collateral takers and intermediaries allows for more resiliency and efficiency to the provision of collateral to Central Counterparties (CCPs) and margin calls during extended stock exchange trading hours.

The proof of concept has sped up and streamlined a complex and bulky process and means parties are able to handle the margin call, the securities collateral delivery and the return process within minutes as clearing participants and CCPs are able to optimise their collateral positions through a collateral dashboard.

Coen van Walbeek, global head of treasury and SBL at ABN AMRO Clearing said: “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.”