ABN AMRO (AS:ABNd) Clearing, EuroCCP, Euroclear, and Nasdaq have successfully conducted a blockchain trial to streamline processes with securities used to cover margin calls. The new solution handles several problems associated with the provision of collateral to central counterparties (CCPs) and proves the feasibility of a shared network comprising collateral givers, collateral takers, and intermediaries.
In trading, a margin call occurs when a brokerage service requires that an investor deposit more funds so that the balance is maintained at the minimum value set by the broker. The margin call may emerge when an investor trades by combining borrowed funds from the broker with their own money (which acts as collateral).
Today, collateral processing has become more inefficient, especially after several market changes such as extended trading hours offered by stock exchanges or the obligation under the European Market Infrastructure Regulation (EMIR) to centrally clear derivatives traded in the OTC markets. A CCP margin call has to be backed by euro collateral within a short timeframe as the options narrow after the working hours of central banks and central securities depositories.
The new solution based on the proof of concept algorithm allowed the parties to manage the margin call and the relevant processes within minutes.
US-based Nasdaq created the proof of concept for the blockchain nodes while EuroCCP, ABN AMRO Clearing, and Nasdaq Clearing created a front end and integrated the system into their own networks.
Coen van Walbeek of Dutch-based ABN AMRO Clearing commented:
“With a faster and more globalized 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.”
Nasdaq Clearing CEO Julia Haglind said:
“As both a leading market technology provider and a CCP operator, Nasdaq is uniquely positioned to bring efficiencies to collateral management. We believe that blockchain technology brings with it a huge potential to transform markets everywhere, and this project is an excellent showcase of this.”
Nasdaq has been endorsing the growth of the cryptocurrency and blockchain markets, with CEO Adena Friedman saying that the company is open to launching a crypto exchange in the future.
This article appeared first on Cryptovest
