‘Liquidity Alliance’ builds blockchain solution for cross-border collateral transfer

Four members of the ‘Liquidity Alliance’ (LA), an international group of central securities depositories (CSDs), are cooperating with Deutsche Börse to launch an initiative leveraging blockchain technology to ease cross-border mobilisation of security collateral. With the planned solution, The Canadian Depository for Securities Limited (CDS), Clearstream (Luxembourg), Strate (South Africa) and VPS (Norway) want to overcome existing hurdles when moving collateral across various jurisdictions, making the transfer faster and more efficient.

Following the financial crisis, regulators increasingly require market participants to provide collateral to mitigate risks in the financial system. The Dodd-Frank Act in the U.S. and EMIR in the EU are two important frameworks in this regulatory overhaul leading to a growing demand for high-quality collateral to which access is limited. CSDs are already supporting the market today with real-time collateral management to ensure that exposures can be covered sufficiently and that local collateral can be quickly transferred where it is needed.

Being jointly provided by regulated market infrastructures, the Distributed Ledger Technology (DLT) based ‘LA Ledger’ prototype will enable a centralised, faster and more efficient allocation of fragmented security positions to cover financial obligations of market participants in multiple jurisdictions. The decentralized character of DLT (blockchain) allows for direct interaction between participants giving it the potential to simplify complex processes.

The ‘LA Ledger’ will initially be implemented as a prototype based on the Hyperledger Fabric blockchain. Validation by regulatory authorities and market participants will start in the second quarter of 2017.

“With this initiative, we pursue an innovative partnership approach that will allow us to jointly embark on distributed ledger technology with a use-case that is highly relevant to the wider industry”, said Glenn Goucher, President and Chief Clearing Officer, CDS.

“LA Ledger is designed to simplify cross-border collateralisation away from using multiple complex and non-standardised links towards smooth movement across various jurisdictions”, added John-Arne Haugerud, CEO VPS.

“We look forward to engaging with regulators and market participants to validate the proposed solution”, added Monica Singer, CEO Strate. “We are convinced that integrating this new technology into a permissioned environment of neutral regulated entities is the right way forward.”

“We are proud to be part of this exciting LA Ledger initiative which is adding another leading edge solution to our award-winning suit of collateral management services to the benefit of our mutual clients”, commented Philippe Seyll, Co-CEO Clearstream Banking S.A. at Deutsche Börse Group



The Liquidity Alliance Now Able to Extend Collateral Management Services to Buy-side via 360T

The Liquidity Alliance is Now Able to Extend Collateral Management Services to Buy-side via 360T: The

  • Service enables the buy-side to trade triparty repos with banks on 360T platform as collateralised alternative to unsecured cash deposits.
  • Service already offered by Clearstream and 360T, will be made available to all members of The Liquidity Alliance
  • The collateral management of the triparty repos is done in a fully automated, white-labelled manner by The Liquidity Alliance.
  • The availability of the service in the markets of The Liquidity Alliance members will be subject to local regulatory conditions and demand from the buy-side.


The buy-side and non-financial institutions are increasingly seeking collateralised alternatives to unsecured cash deposits as they have a heightened counterparty and concentration risk awareness following the financial crisis. The current low interest rate environment is also making cash deposits less attractive.


Triparty repos are a safer alternative to unsecured cash deposits. An additional advantage of triparty repos for the buy-side is that they will be able to re-use the securities they received as collateral for other purposes such as central counterparty margining.


The Liquidity Alliance, including ASX (Australia), Cetip (Brazil), Clearstream (Luxemburg), Iberclear (Spain) and Strate (South Africa), will be able to meet this demand by giving the buy-side an option to collateralise triparty repos with banks through 360T, a platform for foreign exchange and money markets trading.


Buy-side customers will be able to trade triparty repos via the same 360T frontend they use for FX and other money market trades. After confirmation on the platform, all relevant data will automatically be routed straight through to the collateral service of the local member of The Liquidity Alliance, hence minimising the back-office burden and operational risks.


Mathew Kuppe, Managing Director, 360T Asia Pacific, commented: “360T already has buy-side customers in all domestic markets of members of The Liquidity Alliance. The Liquidity Alliance will now have the option to offer these customers the benefit of collateralised trading which was previously only available to financial institutions, via an integrated front end.”


360T has been in a partnership with Clearstream to offer triparty repo trading for banks and the buy-side via the Global Liquidity Hub since 2013. The acquisition of 360T in October 2015 by Deutsche Börse Group, of which Clearstream is a member, now enables Clearstream to extend its joint services with 360T to all members of The Liquidity Alliance in a white-labelled manner. The Liquidity Alliance members will independently review local regulatory conditions and demand from the buy-side for the service.


About The Liquidity Alliance


The Liquidity Alliance was formed in 2013 by five market infrastructures:


  • ASX, a financial infrastructure in Australia;
  • Cetip, a central securities depository specialising in OTC derivatives, in Brazil;
  • Clearstream, the German central securities depository and Luxembourg-based international central securities depository;
  • Iberclear, the central securities depository in Spain;
  • Strate, the central securities depository in South Africa.


Associated members of the Liquidity Alliance:


  • CDS, the central securities depository in Canada;
  • SGX, a financial infrastructure in Singapore;
  • VPS, the central securities depository in Norway.


The Liquidity Alliance is made up of financial market infrastructures which share and develop common collateral management solutions to address the growing global need for more collateral. They collaborate to create opportunities for their customers and for the wider industry while promoting best practices in liquidity and collateral management. The Liquidity Alliance encourages greater pan-industry cooperation through the promotion of expert insight and research as well as though conferences and events.



Liquidity Alliance will Provide Worldwide Collateral Access to T2S

When the European Central Bank’s pan-European settlement platform TARGET2-Securities (T2S) goes live in waves from 2015 to 2017, the Liquidity Alliance members will benefit from access to the future pan-European liquidity pool T2S will create. Streamlined settlement will integrate respective assets for smooth collateral management activities. Iberclear, the Spanish Central Securities Depository (CSD), and Clearstream’s CSD in Germany, Clearstream Banking AG, will act as the gateway into T2S for the entire Liquidity Alliance.


The Liquidity Alliance will thereby add a global dimension to what the European Central Bank had conceived as a purely European project. T2S will not only make cross-border settlement and respective collateral flows in Europe more attractive, but will also boost collateral liquidity both within Europe and globally.


Jesús Benito, Chief Executive Office of Liquidity Alliance member Iberclear, says, “The Liquidity Alliance’s initiative of providing worldwide collateral access to T2S is a major milestone in its history. We are proud to be  a key part of this new facility, which will allow all members to tap the huge collateral resources T2S will make available. In this way, we will be able to maximise the full potential of T2S, enhancing its capabilities and extending its reach at a time when the efficient access and use of collateral has become a priority.”


The Liquidity Alliance, the global association of market infrastructures delivering collateral management services to their markets through a common platform, will offer this access to T2S when it extends its services beyond domestic markets to provide cross-border collateral mobilisation in real time. In other words, the Liquidity Alliance is planning to extend the offering to include offshore assets for the coverage  of domestic exposures as well as to mobilise domestic assets for the coverage of offshore exposures.


The Liquidity Alliance has already developed concepts to use offshore collateral for the coverage of domestic exposures. This will also enable Liquidity Alliance members to use collateral their customers hold in T2S markets to cover exposures in their home markets. The Liquidity Alliance will deliver such cross-border solutions to overcome collateral fragmentation by using domestic collateral to cover international exposures and vice versa.


Monica Singer, Chief Executive Officer of Liquidity Alliance member Strate, the South African CSD, said, “We are very pleased with the prospect of having access to T2S for our collateral management offering. While we had already been following the project with interest from a distance, we did not think we could benefit directly.  Our Liquidity Alliance membership now opens up a great opportunity to access T2S and we are confident it will greatly streamline the activities of our customers in Europe.”


When Clearstream connects to T2S in wave three on 12 September 2016, it will also make Eurobonds available  on T2S. This means that Liquidity Alliance members will also be able to access this important asset class for their customers. Iberclear will connect to T2S in wave four. T2S brings further advantages for collateral management: European domestic and international assets can be consolidated into a single pool of liquidity. As a result, Liquidity Alliance members will be able to seamlessly transfer collateral between CSD (T2S) accounts and ICSD accounts for their customers. 


Clearstream has commissioned two studies to help customers make the most of T2S. A study by PricewaterhouseCoopers (PwC) in 2013 revealed that the benefits of T2S go far beyond increasing cross-border settlement efficiency. In addition to greater mobility of collateral, there is plenty of room for streamlining the custody chain and thus reducing risks therein.


Stefan Lepp, Member of the Executive Board and Head of Global Securities Financing at Liquidity Alliance member Clearstream, the (I)CSD, said, “Clearstream has long been at the forefront of uncovering hidden benefits of T2S for the market. We recognised its immense advantages early on and were one of the first infrastructures to join and to develop a clear T2S pricing strategy. It is only natural for us to not just bring the best of T2S to our customers but also to our global partners in the Liquidity Alliance.”


A 2014 study by Oliver Wyman revealed the T2S benefits banks can unlock by consolidating their securities and cash holdings in Europe directly with CSDs and central banks. Complementary case studies revealed that brokers, asset managers and banks could save between EUR 30 million and EUR 70 million annually if they take timely action to delayer* and consolidate assets across major T2S markets.


Thanks to the access to T2S via Iberclear and Clearstream, the Liquidity Alliance members will also reap these benefits for their customers, which were previously only available to financial institutions in the T2S markets.


*The delayering refers to this: The European post-trade landscape is highly fragmented with multiple layers of intermediation that create inefficiencies, risks and costs.



Liquidity Alliance Implements Next Generation of Customer Connectivity

The Liquidity Alliance, the global association of market infrastructures delivering collateral management services to their markets through a common platform, has announced the implementation of a new customer connectivity solution. The new interface was developed on the basis of experience and feedback received from clients using the underlying collateral management solution since its introduction in 2011.


The ongoing need for market participants to adapt their collateral management practices to new regulatory rules and changing business models has led the Liquidity Alliance to significantly upgrade its customer connectivity solution. The new front-end will deliver enhanced transparency and further advanced management tools for the collateral transactions included in the services offered by the Liquidity Alliance members. In addition, there will be much more flexibility to dynamically adopt the solution to new customer needs surfacing over time.


Having been the first entity to adopt the Liquidity Alliance collateral management solution back in 2011, Cetip, the Brazilian central securities depository, is currently preparing the launch of the new connectivity interface in November 2014 as a pilot for the entire Liquidity Alliance. The other Liquidity Alliance members – ASX (Australia), Clearstream (Luxembourg and Germany), Iberclear (Spain) and Strate (South Africa) – are also part of the subsequent rollouts, which will bring the benefits to customers across the globe from 2015 onwards.


Fabio Zenaro, Products and Business Executive Manager at Cetip, said, “We led the way by implementing the system in 2011 and we have developed with Clearstream a pioneering solution that is a blueprint for other market infrastructures across the globe. With over three years of experience in operating our collateral service for Brazil, we consider it very important to continue bringing innovation to our clients.”


Stefan Lepp, Member of the Executive Board and Head of Global Securities Financing at Clearstream, said, “Being part of the Liquidity Alliance with its global reach has enabled us to understand customer requirements even better and to define superior solutions to service their needs together with our partners. As the technical solution provider, Clearstream is pleased to deliver the next generation of customer connectivity which will bring benefits to all current and future Liquidity Alliance members and their clients.”