Nasdaq, a financial giant, best known for being a global stock exchange operator, has reported a successful trial of a new blockchain-based application, which will provide an efficient securities collateral solution.
According to an official press release, the platform was jointly developed by Nasdaq, securities services provider ABN AMRO Clearing and financial services firms EuroCCP and Euroclear. The brand new proof-of-concept (PoC) blockchain platform will address current inefficiencies that have been further exacerbated recently, with the extension of trading hours.
Right now, Central Counterparties (CCPs) face serious challenges when making margin calls after the stock exchange trading hours are over.
In trading, a margin call is made when a brokerage service requires that an investor deposit more funds so that the maintenance margin, a minimum amount of equity, is satisfied. When an investor trades by combining borrowed funds from the broker with their own money (which acts as collateral) the margin call may emerge as well.
Nasdaq Clearing CEO Julia Haglind welcomed the development and claimed that “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.“
Reportedly, Nasdaq was tasked with the PoC development, while the remaining companies created the front-end and integrated the platform into their own environments.
The press release claims that the blockchain-based solution has “demonstrated that a shared, resilient network can be built between collateral givers, collateral takers and intermediaries,” enabling parties “to handle the margin call, the securities collateral delivery and the return process within minutes.”
The need for such a platform has become evident as the amount of market players on the buying side of things, such as hedge fund managers or institutional firms, clearing their derivative trades, keeps on growing. Therefore, a solution, aimed at fixing current inefficiencies has become essential, especially as such market players need to cover margin calls while operating in different time zones.
EuroCCP chief executive Diana Chan commented on the matter, saying that, “We are excited to be partnering on a proof of concept that is extremely useful for transactions that are not already well-served by market infrastructures. With a solution like this in place we will be able to efficiently provide counterparty risk protection of equity trades after hours while reducing operational complexities. Today we are limited by European banking hours or arrangements in other time zones.“
It seems like the new blockchain solution will greatly improve the efficiency, with Nasdaq continuing to favour the budding technology. In April, Adena Friedman, CEO of the company, claimed that Nasdaq would consider opening a crypto exchange as digital currencies move closer towards mass adoption.
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