A group of central securities depositories (CSDs) are working with Deutsche Borse on a blockchain solution to ease cross-border collateral transactions.
Clearstream, along with CSDs in South Africa, Norway and Canada, have paired up with the operator of the Frankfurt Stock Exchange in an attempt to improve the often time consuming and costly process of shifting collateral across time zones and markets.
The aim is to use distributed ledger technology, or blockchain, to speed up cross-border collateral transfers and allow for a more efficient allocation of fragmented security positions in various countries globally.
Each CSD is a member of the Liquidity Alliance (LA) – a platform for CSDs to collaborate on collateral management. Meanwhile Deutsche Börse, Clearstream's parent company, has been active with blockchain and was recent investor in Digital Asset's $60m funding round.
The German group is currently awaiting approval to merge its operations with the London Stock Exchange.
In a joint statement on Wednesday, the CSDs said a blockchain prototype called LA Ledger that allows direct interaction between participants is currently being tested.
Validation by regulatory authorities and market participants will start in the second quarter of 2017.
Glenn Goucher, president and chief clearing officer of the Canadian Depository for Securities, said: “With this initiative, we pursue an innovative partnership approach that will allow us to jointly embark on distributed ledger technology with a use-case that is highly relevant to the wider industry.”
John-Arne Haugerud, chief executive of Norway’s VPS added: “LA Ledger is designed to simplify cross-border collateralisation away from using multiple complex and non-standardised links towards smooth movement across various jurisdictions.”
The move comes as regulators increasingly require market participants to provide collateral to mitigate risks in the financial system.
Dodd-Frank Act in the US and EMIR in the EU, for example, are leading to a growing demand for high-quality collateral to which access is limited.
Monica Singer, chief executive of South Africa’s Strate, said she is “convinced” that integrating this new technology into a permissioned environment of neutral regulated entities is the “right way forward”.