Repo the rewards
06 July 2021
Broadridge鈥檚 new distributed ledger repo platform provides a single location where market participants can agree, execute and settle repo transactions and promises to save users millions of dollars through operational efficiencies, risk reduction, and increased collateral liquidity
Image: wacomka/stock.adobe.com
Last month, Broadridge announced the successful go-live of its distributed ledger repo (DLR) platform, which promises platform participants reduced risk and operational costs, as well as enhanced liquidity. It seems the proof is in the pudding 鈥� in its first week alone, the DLR executed $31 billion in average daily volume.
The DLR allows for the immobilisation of the underlying securities in repo transactions, while transferring ownership via smart contracts executed on the platform, significantly reducing the operating cost and risk of all repo activity, Broadridge said. The DLR was developed using Daml (Digital Asset鈥檚 modeling language) and deployed on VMware鈥檚 ledger.
Horacio Barakat, Broadridge鈥檚 head of digital innovation and head of the firm鈥檚 DLT repo solution, led the project. Here he explains the platform鈥檚 benefits, origins and how it compares to similar efforts across the industry.
Collateral digitisation
There are 鈥渋mmense and immediate鈥� benefits of using blockchain for repo transactions including operational efficiencies, risk reduction, and increased collateral liquidity, Barakat told SFT. On the operational side, blockchain can decrease costs due to the digitisation of collateral, and smart contracts mean reduced failed transactions and reconciliation time, Barakat explained, as well as a potential reduction in clearing and settlement costs and lower daylight overdraft costs.
In terms of risk reduction, 鈥渨e鈥檝e observed reduced operational risk through one secure record of trade details and reduced counterparty risk while improving the management of counterparty risk鈥�. Increased collateral liquidity and potential development of a repo marketplace for illiquid assets also pose significant potential benefits for the broader industry at large, Barakat added.
鈥淭he benefits of digitisation are clear,鈥� he says. The platform鈥檚 use of smart contracts to transfer ownership without the need to physically exchange, from the collateral to repo agreements in the form of smart contracts, means 鈥渙ur platform can significantly reduce the overall expense structure of the repo market, and improve collateral liquidity by improving collateral mobility鈥�, Barakat noted.
As DLR allows for the immobilisation of the underlying securities in repo transactions, while transferring ownership via smart contracts executed on the platform, 鈥渢he platform provides the opportunity to achieve significant and immediate savings鈥�, Barakat said.
鈥淚n a current market environment that constantly pushes financial institutions to reduce costs and be more efficient, our DLR platform provides the opportunity to achieve significant and immediate savings. Furthermore, it provides a proven path for our clients to accelerate their digital journey and achieve even more efficiencies in the future,鈥� Barakat said.
J.P. Morgan recently revealed it had completed an intraday repo transaction using its custom-built blockchain platform, Onyx, following tests completed with Goldman Sachs and BNY Mellon. Barakat says that Broadridge鈥檚 offering is more comprehensive. 鈥淏roadridge鈥檚 DLR solution allows for the execution of all types of repo transaction, including intraday, overnight, term and open repos, both on a bilateral basis and an intracompany basis,鈥� Barakat said.
Future interoperability
As a market infrastructure and fintech provider to the majority of the fixed income market, servicing 19 of the 24 primary dealers in the US, Broadridge believes it is in a strong position to deliver a distributed ledger repo platform for the industry鈥檚 benefit and bring significant benefits to its clients 鈥� particularly as an independent platform.
Barakat said that Broadridge鈥檚 DLR platform has been the result of 鈥渄eep collaboration鈥� and co-innovation with its clients for three years, first piloting the platform in 2017 with Natixis and Societe Generale. Since then, it has also been piloted by several broker-dealers and buy-side firms.
In addition to the entities that are operating on the platform today, Broadridge will be onboarding multiple entities over the summer. 鈥淔urthermore, we have a very healthy pipeline of market participants that are very keen to start the onboarding process,鈥� Barakat added.
Future interoperability was a primary driver of the way that Broadridge designed the platform and it believes this to be key for broad adoption. 鈥淔or us, interoperability includes seamless connectivity with existing market infrastructure, and also other ledger or digital platforms,鈥� Barakat said. 鈥淭he increased mobility of collateral allows for the optimised management of collateral, which results in lower funding costs and better use of capital.鈥�
The potential savings for clients going forward are substantial. Depending on the volume, type of trades and operating model of the platform participants, Broadridge estimates that potential savings for each client could be up to several million dollars a year.
鈥淭he DLR platform is the result of deep collaboration and co-innovation with our clients and market participants. This approach allowed us to develop a platform that provides significant and immediate benefits to clients, and has very low barriers for adoption,鈥� Barakat concluded.
The DLR allows for the immobilisation of the underlying securities in repo transactions, while transferring ownership via smart contracts executed on the platform, significantly reducing the operating cost and risk of all repo activity, Broadridge said. The DLR was developed using Daml (Digital Asset鈥檚 modeling language) and deployed on VMware鈥檚 ledger.
Horacio Barakat, Broadridge鈥檚 head of digital innovation and head of the firm鈥檚 DLT repo solution, led the project. Here he explains the platform鈥檚 benefits, origins and how it compares to similar efforts across the industry.
Collateral digitisation
There are 鈥渋mmense and immediate鈥� benefits of using blockchain for repo transactions including operational efficiencies, risk reduction, and increased collateral liquidity, Barakat told SFT. On the operational side, blockchain can decrease costs due to the digitisation of collateral, and smart contracts mean reduced failed transactions and reconciliation time, Barakat explained, as well as a potential reduction in clearing and settlement costs and lower daylight overdraft costs.
In terms of risk reduction, 鈥渨e鈥檝e observed reduced operational risk through one secure record of trade details and reduced counterparty risk while improving the management of counterparty risk鈥�. Increased collateral liquidity and potential development of a repo marketplace for illiquid assets also pose significant potential benefits for the broader industry at large, Barakat added.
鈥淭he benefits of digitisation are clear,鈥� he says. The platform鈥檚 use of smart contracts to transfer ownership without the need to physically exchange, from the collateral to repo agreements in the form of smart contracts, means 鈥渙ur platform can significantly reduce the overall expense structure of the repo market, and improve collateral liquidity by improving collateral mobility鈥�, Barakat noted.
As DLR allows for the immobilisation of the underlying securities in repo transactions, while transferring ownership via smart contracts executed on the platform, 鈥渢he platform provides the opportunity to achieve significant and immediate savings鈥�, Barakat said.
鈥淚n a current market environment that constantly pushes financial institutions to reduce costs and be more efficient, our DLR platform provides the opportunity to achieve significant and immediate savings. Furthermore, it provides a proven path for our clients to accelerate their digital journey and achieve even more efficiencies in the future,鈥� Barakat said.
J.P. Morgan recently revealed it had completed an intraday repo transaction using its custom-built blockchain platform, Onyx, following tests completed with Goldman Sachs and BNY Mellon. Barakat says that Broadridge鈥檚 offering is more comprehensive. 鈥淏roadridge鈥檚 DLR solution allows for the execution of all types of repo transaction, including intraday, overnight, term and open repos, both on a bilateral basis and an intracompany basis,鈥� Barakat said.
Future interoperability
As a market infrastructure and fintech provider to the majority of the fixed income market, servicing 19 of the 24 primary dealers in the US, Broadridge believes it is in a strong position to deliver a distributed ledger repo platform for the industry鈥檚 benefit and bring significant benefits to its clients 鈥� particularly as an independent platform.
Barakat said that Broadridge鈥檚 DLR platform has been the result of 鈥渄eep collaboration鈥� and co-innovation with its clients for three years, first piloting the platform in 2017 with Natixis and Societe Generale. Since then, it has also been piloted by several broker-dealers and buy-side firms.
In addition to the entities that are operating on the platform today, Broadridge will be onboarding multiple entities over the summer. 鈥淔urthermore, we have a very healthy pipeline of market participants that are very keen to start the onboarding process,鈥� Barakat added.
Future interoperability was a primary driver of the way that Broadridge designed the platform and it believes this to be key for broad adoption. 鈥淔or us, interoperability includes seamless connectivity with existing market infrastructure, and also other ledger or digital platforms,鈥� Barakat said. 鈥淭he increased mobility of collateral allows for the optimised management of collateral, which results in lower funding costs and better use of capital.鈥�
The potential savings for clients going forward are substantial. Depending on the volume, type of trades and operating model of the platform participants, Broadridge estimates that potential savings for each client could be up to several million dollars a year.
鈥淭he DLR platform is the result of deep collaboration and co-innovation with our clients and market participants. This approach allowed us to develop a platform that provides significant and immediate benefits to clients, and has very low barriers for adoption,鈥� Barakat concluded.
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