HQLAX recently revealed it has secured fresh funding from multiple international banks who will also be directly connecting to the DLT platform in various capacities. What does this mean for your growth?
Beyond the substantial financial backing we鈥檝e received from BNY Mellon, Goldman Sachs, BNP Paribas 色花堂Services and Citigroup, as well as our existing strategic partner in Deutsche Boerse, the most important thing is it allows us to continue our focus on collaborating with key industry partners to further enhance the platform functionality and meet the needs of our clients.
Beyond the core securities finance market, we also have a long-standing relationship with R3 who provide the technology 鈥� Corda Enterprise 鈥� for our distributed ledger technology (DLT) platform.
For our newest partners, BNY Mellon will connect as both a triparty agent and agent lender, Goldman Sachs as principal, BNP Paribas 色花堂Services as a triparty agent, and Citibank as a custodian.
What鈥檚 key here is that these big name firms are committing publicly to our platform, which is very important for us. Having BNY Mellon and BNP Paribas as triparty agents goes a long way to enhancing the 鈥榥etwork effect鈥� of our platform by adding the collateral pools they manage. Citibank as a custodian also brings another collateral pool.
Moreover, having BNY Mellon also operating as an agent lender will increase the supply of upgrade transactions on our platform, while Goldman Sachs as a principal should help drive overall volumes.
This is in addition to Clearstream, Euroclear and J.P. Morgan, all of which are all already connected to the HQLA岬� platform as triparty agents.
The adoption of DLT solutions within securities finance has come a long way from conversations of theoretical use cases. Could 2021 be a pivotal year for DLT?
It鈥檚 clear that infrastructure providers and market participants are taking DLT seriously and this is another example of that.
There are other examples, such as with J.P. Morgan鈥檚 intraday repo transaction which used an in-house blockchain platform back in December. It all adds further validation that DLT can provide efficiency benefits for not only securities finance and collateral management markets but also the wider financial industry.
HQLAX had a busy 2020 and now you鈥檝e had a positive start to 2021. How are you looking to grow from here?
The platform today supports collateral swaps. Primarily, we enable simultaneous exchange of ownership for baskets of securities without settlement movement between custodians or triparty agents.
In the near term, meaning this year and next, we are looking to connect additional triparty agents and custodians, as well as additional clients.
In terms of products, we are working on specific flows for agency securities lending and others such as one-sided title transfer. Our aim is to address 鈥榮pecific pain points鈥� for our clients and for the broader benefit of the securities lending and collateral management market.
The reality is that there are many things we could focus on, so we鈥檙e careful about developing the ideas that will provide the most benefit to our clients. For the solutions that reach the top of the priority list, we run regular client roundtable meetings to help focus everyone on designing the solution, validating it, and to then get the solution up and running on the HQLA岬� platform.
In terms of technical connectivity, we鈥檝e put considerable effort into defining flows in order to plug into existing infrastructure providers, and we鈥檝e continued to streamline our technical connectivity to clients to facilitate their onboarding to HQLA岬�.
For example, we鈥檝e worked with the Deutsche Boerse Trusted Third Party to deliver a solution to make the 色花堂Financing Transactions Regulation reporting of HQLA岬� collateral swap transactions as easy as possible for our clients.
Another example of innovating on top of our initial product, is that we鈥檙e working with a leading agency securities lender to enable their bank borrowers and beneficial owners to benefit from exchanging ownership of collateral and principal legs simultaneously via the HQLA岬� platform.
For borrowers, this will help avoid the capital costs that exist today because of intraday credit exposures and operational risk caused by the collateral and principal legs moving at different times.
Last year saw demand for high-quality collateral and overall trading volumes spike. How did the COVID-19 pandemic affect your business and your clients?
During the Spring volatility last year we heard from our clients that some of the products we鈥檝e laid out in our future roadmap, such as pledges, would have helped them navigate the period if they were available.
We鈥檝e been exploring creative ways to use the HQLA岬� platform to help clients satisfy pledge requirements. These could be to offset counterparty credit exposures to a central counterparty or a bilateral counterparty for over-the-counter derivatives, or to help source intraday cash liquidity with a clearing bank or central bank.
Roughly the past decade has been dedicated to meeting new regulatory requirements. Now there is a sense that houses can pause for a breath and look at their core processes and see which could be automated or made more efficient. Optimising collateral across multiple uses, in particular, is being driven by the regulations such as the Uncleared Margin Rules as well as internally.
HQLAX is a European platform, but do you have a vision of entering other regions?
We see a lot of requests from other regions but we are staying focused on Europe to begin with. Our aim is to add real value to our European clients first and foremost but it is a global marketplace and many of our clients operate globally.
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