Dutch bank ING announced on Friday that it had invested in the HQLA securities lending platformX. In November, the startup launched its collateral management solution built in collaboration with Deutsche Börse, which until now has been the startup’s main external investor.
The first post-production transactions in November were concluded between Credit Suisse, UBS and Commerzbank.
HQLAX originally started as an incubator project in the corporate blockchain firm R3, and the initial prototype was made as an R3 lab with five banks. ING was one of the banks and their team developed much of the prototype code. Following this, a live pilot in 2018 with ING and Credit Suisse, all before the collaboration with Deutsche Börse.
“The successful commercial launch of HQLAX is an important milestone for the implementation of blockchain in the securities lending market and proof that blockchain can bring tangible benefits to the industry, “said Mariana Gomez de la Villa, head of the blockchain team ING.
“It is gratifying to see that a project that we have been working on for years is now online.”
The platform allows banks to exchange high quality liquid assets (HQLA) such as government securities, bonds and stocks. Today, banks around the world hold $ 13 trillion in HQLA. The guarantee is retained and, in the event of an exchange to upgrade or downgrade a portfolio, depositaries or guarantee agents must generally legally transfer ownership and move the assets. Instead, with HQLAX there is a digital record of guarantees (DCR), and the transfer takes place in a chain, thus allowing intraday exchanges.
It is made possible by a trusted third party belonging to the Deutsche Börse which sits between the depositaries (tripartite agent) and HQLAX. The guarantee therefore remains with the original agent.
“HQLAX allows market players to redistribute their guarantees by exchanging ownership of tokenized securities on the Corda blockchain platform, which no longer requires that the underlying securities move between users. This removes settlement barriers and improves the flow of collateral, making it easier, faster and more efficient for users to manage their cash, “said Gomez de la Villa.
Current status and plans
HQLAX is in the process of integrating at least 15 new members, including CIBC, Citi, Goldman Sachs and ING.
The tripartite agents involved in the launch were Clearstream Banking and Euroclear Bank, and JP Morgan is expected to be in service in the second quarter.
Asked about future plans, HQLAX CEO Guido Stroemer wanted to focus on the integration and the first application.
“We are very sensitive not to do too much too soon. Because it is crucial for this very targeted use case that we deliver to the market that it is used by the market, ”explained Stroemer. “And then, once we have this positive feedback loop where we have a critical mass of ten to 15 customers, for example, who actively use the platform on a day-to-day basis, we will also have the critical mass of institutions at the table to help us shape our next steps in terms of product evolution. ”
In the future, he sees the possibility of using digital collateral registrations (DCR) to pledge securities for over-the-counter exposures or centrally cleared derivatives. Likewise, cash-on-ledger is interesting, and Stroemer said there are many ways to do it. We asked about the Settlement Coin Utility (USC) – the institutional currency backed by commercial bank deposits in central banks – because the two companies’ collaboration was discussed.
“Working with platforms such as Fnality and the USC (Utility Settlement Coin) is something that we are open to. I think it would be good to be able to engage in an exchange between a USC and a DCR, but to this is not part of our product roadmap, ”said Stroemer.
ING continues its corporate blockchain campaign
ING is one of the most active banks in the blockchain sector. He invested in R3, the company behind Corda’s distributed register (DLT) technology, and was the first to publicly commit to multi-year corporate blockchain licenses for Corda. He is also currently working on a digital asset preservation solution. Exceptionally for a bank, it develops basic confidentiality technology, zero knowledge evidence.
The bank participates in three of the four main trade finance platforms. He was one of the founders of the komgo commodity finance platform and is the largest funder of TradeIX, which is the network operator for Marco Polo. More recently, it is one of the eight founding banks of the Contour Letter of Credit platform (formerly Voltron).
ING focuses in particular on the raw materials sector, which is an attractive area of commercial finance. It is part of the VAKT aftermarket oil platform as well as Forcefield in metals.