ING bank logo is seen on the office building in Krakow, Poland. (Photo by Jakub Porzycki/NurPhoto ... [+]
Dutch bank ING has made an undisclosed investment into HQLAx, a Blockchain-based securities lending platform that helps improve collateral fluidity by creating a new, efficient, transparent, and more cost-effective marketplace for liquidity transfers.
This is not the first dealings that ING and HQLAx have had with one another as, in early 2018, the bank, along with Credit Suisse, executed their first live transaction using HQLAx securities lending app on R3's Corda blockchain platform.
In December 2019, the securities lending platform went commercially live with help from the ING blockchain team and has also already seen action by executing its first commercial live transaction with Commerzbank, Credit Suisse and UBS.
The initial live securities trade on a blockchain platform saw an exchange of €25 million of high-quality liquid assets with Credit Suisse using the collateral lending application of HQLAx. This demonstrated a more powerful transaction as in a traditional settlement of a securities lending transaction, individual underlying securities are transferred between accounts. However, the intent of the operating model for the HQLAx collateral lending application was to achieve a legal title transfer of baskets of securities through the transfer of ownership of the unique DCR-linked accounts themselves.
Part of the process
The investment in HQLAx from ING is not one that is without consideration as the ING team has been very much a part of growing the securities lending platform. This investment is an investment in an ING product as much as in HQLAx.
“The successful commercial launch of HQLAx is a big 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 ING’s blockchain team. “It’s rewarding to see that a project we’ve been working on for years, is now live.”
The importance of implementing blockchain technology for this aspect of banking is one intended to tackle concerns over liquidity. Banks need high-quality liquid assets to meet tougher liquidity requirements under Basel III. These are assets that can easily and immediately be converted into cash without losing their value. However, holding too many lowers their return. Efficient trading allows banks to optimise their balance sheets.
“HQLAx enables market participants to redistribute their collateral by exchanging the ownership of tokenized securities on Corda’s blockchain platform, which no longer requires the underlying securities to move across users. This removes settlement barriers and improves collateral fluidity, which in turn allows users to manage their liquidities easier, faster and more efficiently,” added Gomez de la Villa.
Early potential
When the first live securities lending transaction was settled using R3's Corda blockchain platform via the HQLAx platform, the potential for its application was quickly unlocked and apparent.
Romain Dumas, Head of Rates Repo and Collateral Optimization at Credit Suisse Securities (Europe) Limited, explained at the time of this initial transaction: "The success of this first live transaction speaks to the potential for blockchain technology to help improve collateral fluidity by creating a more efficient, transparent, and cost-effective marketplace for liquidity transfers."
Paolo Muzzarelli, Head of Transaction Banking Products within Financial Institutions at Credit Suisse (Switzerland) Ltd., also said: "As a provider of Transaction Banking services, it is of paramount importance to engage in technological change to understand and anticipate the future needs of our sophisticated client base."
