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Credit Suisse and ING Group have completed the first live securities lending transaction together with fintech innovator HQLA-X. The project commenced in April 2017 and also includes CIBC, Commerzbank, and UBS.
The transaction during the test was settled on R3's blockchain platform Corda, and involved the two banks swapping the legal ownership of baskets of securities worth €25 million ($30.5 million) using HQLA-X Digital Collateral Records (DCRs). During the transaction, the underlying securities remained static in DCR-linked custody accounts held by the banks. The successful test brings HQLA-X's collateral lending application closer to production, and the companies expect it to be live by the end of 2018.
Using this application can make swapping ownership of securities more efficient. The settlement of a securities lending trade typically involves the underlying securities being transferred between accounts in the process. This can take days to settle at times, meaning that the liquidity of those trades is postponed, making the process less efficient. However, HQLA-X's collateral lending application can swap the legal ownership of those securities instantly. This makes the process much faster, as the collateral is available immediately. Additionally, all parties are able to monitor the transaction in real time, increasing transparency.
While the application is promising, traditional transfers aren't likely to become obsolete anytime soon. While it is good news that a successful test of the application has been completed, and further testing is possible with the project's other three members, we are still not at a stage where new blockchain solutions are completely replacing traditional transfers.
This successful test shows that banks are still interested in blockchain technology and its potential use cases, but they are exploring it with caution and by taking their time. Hence, it will likely take much longer for them to fully implement the new solutions in their businesses.
Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on blockchain in banking that:
- Outlines banks' experiments with blockchain technology.
- Details blockchain projects at three major banks — UBS, Credit Suisse, and Banco Santander — based on in-depth interviews.
- Discusses the likely trends that will emerge in the technology over the next several years.
- Highlights the factors that will be critical to the success of banks implementing blockchain-based solutions.
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