U.S. stock exchange operator Nasdaq has announced a new blockchain proof-of-concept that covers margin calls in a matter of minutes.
The blockchain platform allows margin calls to be resolved by automatically distributing requests across a network of intermediaries and funders, in a process that completes much more quickly than current systems allow.
The proof-of-concept was developed by Nasdaq in collaboration with a number of other firms, including Euroclear and EuroCCP, alongside ABN AMRO Clearing.
According to the announcement, Nasdaq developed the platform mechanics, while its collaborators worked on integration and front-end systems. Euroclear focused on the clearing side, processing collateral transfers and upholding compliance.
The proof-of-concept allows investors to cover margin calls in a much shorter period of time, and systematically via a distributed network. This improves the efficiency of the process, as well as alleviating the pressures introduced by recent EU regulation.
Collateral processing has become increasingly more complex following changes in market rules, including rules relating to trading hours and the adverse European Market Infrastructure Regulation regime.
With the Nasdaq proof-of-concept, the aim is to counteract these issues, and to make the process altogether more streamlined, particularly in cases where collateral is required across time zones, or for clearing derivatives transactions.
According to the Nasdaq release, the aim is “to handle the margin call, the securities collateral delivery and the return process within minutes,” which would be a major benefit for market participants.
Diana Chan, CEO of EuroCCP, said the platform would be an improvement, protecting against the counterparty risk to equity transactions.
“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.”
The proof-of-concept is already being hailed as a significant development, the latest blockchain platform to focus on efficiency improvements in financial markets.
Powered by the technology that supports cryptocurrencies like bitcoin, the blockchain application is one of several under development within the banking and financial sectors, not least by Nasdaq, which is now to be broadly experimenting with the technology.
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