Blockchain Platform to Transfer Collateral to Central Counterparties (CCPs)

By Kapil Gauhar

A group of industry collaborators have successfully developed a Blockchain platform to transfer collateral to central counterparties when they’re trading in securities.

A Proof-of-Concept (PoC) Blockchain platform has been developed jointly by three companies. This announcement was made on Tuesday by Stock exchange operator Nasdaq that three financial wings which included Nasdaq’s own clearing arm along with ABN AMRO’s clearing and financial sevices firm EuroCCP and Euroclear. Euroclear is the world’s largest settlement company.  The blockchain platform’s objective is to cover margin calls. It aimed at providing a need to deposit funds or securities to cover potential losses through a distributed system among collateral givers, takers, and intermediates.

Nasdaq was instrumental in developing the PoC for the distributed network while ABN AMRO clearing and EuroCCP created the frontend interface and managed the integration process. Euroclear’s responsibility was to process the underlying collateral transfers and ensuring settlements within the regulatory compliance.  

Since the market comprised of majority of buy-side players who want to clear their derivatives trade, it was important to provide an efficient securities collateral solution. The buy-side players constituted the money managers at hedge funds and institutional firms. It was important for these firms to cover margin calls despite operating in different time zones.

According to a press release the current collateral processing has been challenged by a series of market changes. This provided extended trading hours and the need to centrally clear the derivatives traded over the counter under the European Market Infrastructure Regulation (EMIR).

EuroCCP’s Chief Executive Officer, Diana Chan claims the PoC to be “extremely useful” in fulfilling the requirement. She further explained, “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 or arrangements in other time zones.”