Unbeknownst to many, the world of private blockchains is quietly revolutionizing the securities financing industry. Financial technology consultancy Broadridge and Europe-focused securities finance firm HQLAx are leading the charge, handling over $1.5 trillion worth of repurchase agreements and other forms of securities financing on a monthly basis.
The Lifeblood of Capital Markets
The multitrillion-dollar repo market is the lifeblood of funding in capital markets. While this may come as a surprise to tokenization enthusiasts in both crypto and traditional finance, these private blockchain platforms are being employed at a significant scale by many of the world’s biggest banks and institutions.
Dominant Players in the Private Blockchain Space
“Working with JPM Coin, on the cash side, is probably the largest digital-cash initiative in the world, and we are probably the largest collateral initiative in the world,” said Horacio Barakat, head of digital innovation at Broadridge.
Broadridge’s Distributed Ledger Repo (DLR) platform, built using Digital Asset’s Canton Protocol, handles $50 billion in repo volume a day and is used by major banks like Societe Generale, UBS, HSBC, and DRW. Another prominent player is HQLAx, which is built on R3’s Corda ledger and includes HSBC, BNY Mellon, and Goldman Sachs on its platform.
Interoperability and Integration
These private blockchain platforms also build cross-chain interoperability and integrate bank-grade cash settlement tokens. Last week, HQLAx completed a delivery versus payment (DvP) repo settlement with Fnality, a provider of institutional-grade digital cash built on a permissioned version of Ethereum. Broadridge’s DLR is also interoperable with JPMorgan’s JPM Coin, which runs on a privacy-focused fork of Ethereum.
Efficiency and Cost Savings
According to HQLAx CEO Guido Stroemer, these private blockchain platforms can save banks between 50 million and 100 million euros per year by relieving the “spaghetti mess” of securities that need to be physically moved around to meet collateral obligations.
The Future of Tokenization
While tokenization is firmly entrenched in the crypto mindset, these closed-loop private blockchain platforms may have the best product-market fit in the tokenization space. As Broadridge’s Barakat noted, there’s a transformative scenario where native securities are issued on a public network and settled with open digitized cash, but that requires regulatory changes and overcoming the natural risk aversion that comes with incorporating new technology.
In the meantime, private and semi-private blockchain networks are popping up, providing immediate opportunities for the securities financing industry to streamline its operations and reduce costs.
