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Stock exchange operator Nasdaq has successfully tested a blockchain-based Proof-of-Concept.
Stock exchange operator Nasdaq has successfully tested a blockchain-based Proof-of-Concept (PoC) that provides an efficient 24/7 securities collateral solution, according to a press release published Tuesday, June 19.
The new blockchain platform has been jointly developed by Nasdaq, ABN AMRO Clearing, EuroCCP and Euroclear, and aims to address the challenges facing Central Counterparties (CCPs) when it comes to making margin calls after stock exchange trading hours are over.
Margin calls are made when an investor who holds a margin account with a brokerage firm is required to deposit additional funds in order to satisfy a âmaintenance marginâ - a minimum amount of equity - that serves as collateral against potential losses.
According to EuroCCP CEO Diana Chan, in the current system, counterparty risk protection for equity trades is ânot well-servedâ by global market infrastructures.
Derivatives clearance must be made in full compliance with European Market Infrastructure Regulation (EMIR), and clearing participants and CCPs are facing âsignificantâ difficulties when making margin calls and securing collateral transfers after hours and across multiple time zones.
The press release reveals that the new blockchain PoC has successfully âdemonstrated that a shared, resilient network can be built between collateral givers, collateral takers and intermediaries,â enabling parties âto handle the margin call, the securities collateral delivery and the return process within minutes.â
Coen van Walbeek, Global Head of Treasury and SBL at ABN AMRO Clearing, is quoted as saying that the PoC is âa breakthrough for the CCP model,â with the head of Nasdaq Clearing adding that the project is an âexcellent exampleâ of blockchain technologyâs âhuge potential to transform markets everywhere.â
Nasdaqâs partners in developing the new blockchain PoC are among the worldâs leading financial service firms. Euroclear holds ââŹ28.6 trlnâ in clientsâ assets, ABN AMRO Clearing, processes âover 16 mlnâ trades daily and âis consistently ranked as a top 3 clearing house in most time zones, and EuroCCP is âthe most connected CCP in Europe,â with âaccess to 82% of equity trades executed on 26 trading platforms.â
Earlier this month, Nasdaqâs CEO Adena Friedman said that while blockchain technology still needs development to improve its scalability, the technology could potentially in future address the âmassive inefficienciesâ on private securities markets, and is a âfascinating technology that could be quite disruptiveâ over the long term.
In April, the CEO said that if regulatory clarity will be forthcoming, âcertainly Nasdaq would consider becoming a crypto exchange over time.â
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