Pilot blockchain achieves lift off


Broadridge has finished its latest blockchain pilot, focused on bilateral repo. Horacio Barakat discusses the progress made, and where the firm will go next

Broadridge recently completed a DLT pilot for bilateral repo. Why did you choose this area?

One of the reasons we tackled repo was Broadridge’s position in the fixed income markets — in the US, Broadridge has 18 of the 23 primary dealers in the US in its system. Our position provided the necessary network for any blockchain of distributed ledger technology (DLT) solution to be adopted.

The point of the technology is to standardise processes in order to accelerate adoption, and this was one of the key parameters of selection for our test case. We are seeking the ability of a blockchain DLT to provide sufficient process efficiencies, but also to take advantage of the networks that Broadridge has, in order to drive adoption on repo. And we don’t see it just stopping here.

We hope for it to be the foundation that stretches into much broader functionalities in order to achieve a broad collateral management solution. This is part of a much longer road map.

Our thought process is to find specific pain points for specific areas of the market that could be significantly improved in the short term. But, by tackling the foundational aspects, the effects can be compounded to help us tackle much larger problems.

What were the successful aspects of the pilot? And what were the main issues it highlighted?

We worked closely with other collaborating banks to reimagine how we want non-cleared bilateral repo transactions to be. To do this, we recreated the entire process from beginning to end.

Firstly, we onboarded the participants’ collateral into our blockchain environment, and once it was uploaded, we created the application for participants to be able to enter trades directly into the DLT so it captures trade terms in their physical form.

It will then allow us to perform lifecycle activities such as mark-to-market, repricing, re-rates and other modifications to the repo contract. Other areas we tested were collateral substitution, cancellation of the repo, rejection of the repo and, finally, the return of the collateral.

All of these activities were conducted seamlessly using DLT, allowing the participant to interact directly. If one person changes the terms, the other party is instantly aware and can approve, reject or modify them without the need of an intermediary, making the process much more efficient.

Over the course of the heavy development, we have been working to the mantra “work and adjust”. During the hard testing of the technology, there were some points where you could see instability in the technology, and there are things that still need to be worked out and stabilised in the near term for it to be production ready. Firms like Broadridge will achieve this. By testing all the different platforms, we will make it happen.

In what other areas are you testing DLTs?

Everything we have done and are doing follows longer-term road maps. In the most recent case we piloted and tested the product for over a week and we continue to work on it as part of that roadmap.

In April, we did another operational test around global proxy voting, collaborating with J.P. Morgan, Santander and Northern Trust, shadowing an annual meeting from beginning to end. It is something we have continued to focus on because we want to broaden participation in the market, but also to deepen the functionality in order to reimagine the global proxy processes. Even though we announced it in April, it is continuing on its roadmap towards a much larger solution. We have other test cases we are working on, but we tend not to announce them prior to testing.

What can other institutions do to help progress DLT?

One of the key factors for success for all blockchain solutions is the broadening of participants. Assuming that the benefits are useful, which we proved in our case, we need more people to participate, and this is something we are working hard to achieve.

We do this through broadening the network to work into this bilateral repo pilot and expanding functionality to move towards a more fully-functioning collateral management solution, which is going to be very exciting for a lot of institutions. We are excited to be collaborating towards that goal.

Have you set a timeline for full functionality?

It’s very difficult to envisage a timeline, but we are already working on it. We have the road map and are currently working through our phases.

We are done with phase one and we have already started on phase two. It is very difficult to time those, but we are working through it.

Phase two is all about expanding the functionality of the movement of collateral in a blockchain environment. The further we progress with that functionality, the more it will provide benefits to the ecosystem.

Is there still any skepticism from the big institutions surrounding DLT use in financial markets?

It depends on the use of the technology. In the test cases we have focused on, the technology has proved that it can provide operational efficiency and reduce counterparty risk.

Obviously, the technology still needs to evolve—it is relatively infant, but it has made some significant progress over the last six months. The way that the technology and platforms are evolving is strong, but there are things that need to be worked on.

In terms of operational efficiencies that we tested, we were proven right, so we are very optimistic and bullish about the effects it will have in various areas of capital markets.

To stress the point for all the test cases, but primarily for bilateral repo, it is all about the roadmap. We are hoping to work towards a full collateral management solution, which would address an area that a lot of institutions see as a big pain point within the industry.
Features
The latest features from Securities Lending Times
SFTR is bringing significant changes to the securities lending landscape, but Nex is creating and collaborating to help clients through. Colin Murphy and Matthew Bernard explain
Between the LGPS pooling project, Brexit and changes in technology, fund managers in the UK, and their service providers, have a lot to think about
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Broadridge has finished its latest blockchain pilot, focused on bilateral repo. Horacio Barakat discusses the progress made, and where the firm will go next
Forthcoming collateral rules will require the buy-side to find trillions of dollars in additional margin, and securities financing is at the heart of many of the solutions being explored, writes BNY Mellon’s Peter Madigan
Euroclear’s Olivier Grimonpont reviews how new margin rules are forcing collateral managers to adapt, and how collaborative solutions are the answer
The securities lending industry has some much needed respite from new regulations, and the mood at this year’s RMA Conference was upbeat
Collateral managers must embrace innovation and strive for greater efficiency in processing. Jenna Lomax reports from Amsterdam
Anand Krishnan of Natixis Americas explains how regulatory pressures are changing the rules of the game and buy-side entities are changing with it
Country profiles
The latest country profiles from Securities Lending Times
The German securities lending market is weeks away from the introduction of a new tax on dividend income that may drive participants out the market
Francisco Thiermann of IBM says the imminent launch of Chile’s securities lending blockchain solution will provide a shot in the arm for the market
Asset Servicing Times

Visit our sister site
for all the latest asset servicing news and analysis

assetservicingtimes.com
Zubair Nizami, head of Asian securities lending trading at Brown Brothers Harriman talks to Drew Nicol about the state of the industry in the region
Being an exciting emerging market is all well and good, but how long can that status really apply before interest wanes? India is doing its best not to find out
Hugh Leonard, director of repo sales at Australia and New Zealand Banking Group, explains how the Australian market has excelled in recent years
Securities lending is in a strong place in Australia. Dane Fannin, head of capital markets in the Asia Pacific at Northern Trust, explains the available opportunities
Federico Ortega Gilly of Mexico’s Nacional Financiera explains why his country’s securities lending market is ripe for foreign investment
Russia’s National Settlement Depository has had a busy year making its securities finance market more robust and attractive to outside investors. The CSD’s Alina Akchurina explains the innovations being implemented
Interviews
The latest interviews from Securities Lending Times