ABN Amro Clearing along with Euroclear, EuroCCP, and Nasdaq carried out the proof of concept. The test was done in order to make using securities in central counterparty margin calls more efficient, including outside of business hours.
Participants in the clearing process and central counterparties improved their collateral positions with the use of a collateral dashboard.
ABN Amro Clearing, Nasdaq Clearing, and EuroCCP created a tailored front-end and spear headed integration into their own proprietary environments while Nasdaq developed the proof of concept for the distributed technology (DLT) nodes.
Currently, there are numerous pain points regarding issuing collateral to CCPs, with the now extended trading hours and the European Market Infrastructure’s requirement to clear bilaterally-traded derivatives centrally exacerbating these collateral processing issues.
At present, euro collateral for CCP margin calls needs to be covered in a short amount of time, and coverage options shrink after hours, typically after 18:00 CET. Securities are used by some CCPs to fill in the gap for evening initial margin calls, but it is unattractive and seldom employed due to its complexity regarding securities delivery and inefficiency.
Many buy-side actors are also beginning to clear their derivative trades centrally.
In the proof of concept, collateral transfers were procced by Euroclear’s Central Securities Depository.
Coen van Walbeek, global head of treasury and SBL at ABN Amro Clearing spoke thusly about the partnership:
“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.”
This completion of a PoC using blockchain in banking comes as USB Group AG’s CEO, Sergio Ermotti, told CNBC that blockchain is critical for business. “It’s almost a must,” he says, going on to mention that the use of the technology frees up resources and “is a great way to allow us to reduce costs”.
UBS is currently using blockchain technology to power a global trade finance platform called Batavia, an endeavor that also involves other banks as well as IBM.
By Elliot Lyons, Research Analyst