Frictionless trade: collateral just the beginning
20 July 2021
Guido Stroemer at HQLAX sets out how the firm鈥檚 collateral mobility-boosting distributed ledger technology lays the groundwork for its long-term vision to transition towards a frictionless model of asset transfers
Image: stock.adobe.com/dottedyeti
HQLAX chairman and CEO Guido Stroemer thinks the main challenge in transforming the securities lending industry via distributed ledger technology (DLT) is human nature鈥檚 resistance to change. Implementing innovative emerging technology solutions is hard work, Stroemer told SFT, as it requires strong collaboration and broad consensus building, not only with direct partners and supporters, but also amongst perceived competitors. To illustrate his point, Stroemer quoted Niccol貌 Machiavelli鈥檚 16th century political treatise,聽The Prince 鈥�
鈥淭here is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. For the innovator has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries 鈥� and partly from the incredulity of mankind, who do not truly believe in anything new until they have had actual experience of it.鈥�
鈥淭his quote captures the essence of the challenges faced by any agent of change,鈥� Stroemer said, and it applies to HQLAX in applying innovative DLT technology to help improve collateral mobility across the securities finance ecosystem. 鈥淭hankfully, HQLAX has received strong support from incumbent market players from our very inception, and this support continues to grow day by day.鈥�
Movers and shakers
On the origins of the DLT initiative, Stroemer said HQLAX started out as a proof-of-concept project in R3 Laboratory, a DLT and blockchain software development company, in 2017, which built HQLAX on the company鈥檚 Corda blockchain. 鈥淒uring this initial project, we built a prototype of our operating model and received valuable feedback from five global banks on the viability of taking our proof of concept into production,鈥� Stroemer said.
The feedback received was 鈥渞esoundingly positive鈥�, and so production of the platform began with Deutsche B枚rse Group instrumental early supporters, underscored by their strategic investment in the company in 2018. 鈥淭ogether with Deutsche B枚rse Group, we brought the HQLAX operating model into production in late 2019,鈥� Stroemer added.
We have always prided ourselves as being a platform 鈥渄esigned by the industry, for the industry鈥�, Stroemer said, 鈥渁nd we always knew that to achieve scalable market adoption, we would need the support and buy-in from the broader securities finance community鈥�.
HQLAX received important support in 2020, when it successfully closed a Series-B strategic investment round led by BNY Mellon, Goldman Sachs, BNP Paribas Securities Services and Citigroup,with participation from longtime strategic partner Deutsche B枚rse Group.
鈥淛ust very recently we received further industry buy-in when we welcomed J.P. Morgan as our newest strategic investor,鈥� Stroemer added. Not only is the financial backing from these recent investments substantial, but the public commitment from these new investors to connect to the HQLAX platform 鈥渟peaks volumes towards validating our vision to accelerate collateral mobility across the global securities finance ecosystem鈥�, Stroemer said.
Freedom of movement
HQLAX鈥檚 immediate mission statement is to help improve collateral mobility amongst market leading tri-party agents and custodians in Europe, Stroemer said. 鈥淥ur longer-term vision is to accelerate the financial ecosystem鈥檚 transition more broadly towards frictionless ownership transfers of assets.鈥� In order to achieve this vision, HQLAX will expand the depth of its product offering over time and extend the jurisdictional reach of the platform.
Stroemer is cautious of replicating the fragmentation of the past. The genesis behind the creation of HQLAX was to help the industry solve interoperability bottlenecks across a siloed securities settlement system, Stroemer said, 鈥渟o the last thing we want to see now is a siloed ecosystem of DLT platforms across the securities finance ecosystem鈥�.
Looking to the future, Stroemer said HQLAX鈥檚 view of the securities lending and financing marketplace is one in which depositories, for a multitude of asset classes located across the global jurisdictional landscape, are connected by an interoperable network of digital registries. Together, Stroemer concluded, they will facilitate seamless ownership transfers, not only for cash and securities, but also for other asset classes such as commodities, precious metals and digital assets.
鈥淭here is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. For the innovator has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries 鈥� and partly from the incredulity of mankind, who do not truly believe in anything new until they have had actual experience of it.鈥�
鈥淭his quote captures the essence of the challenges faced by any agent of change,鈥� Stroemer said, and it applies to HQLAX in applying innovative DLT technology to help improve collateral mobility across the securities finance ecosystem. 鈥淭hankfully, HQLAX has received strong support from incumbent market players from our very inception, and this support continues to grow day by day.鈥�
Movers and shakers
On the origins of the DLT initiative, Stroemer said HQLAX started out as a proof-of-concept project in R3 Laboratory, a DLT and blockchain software development company, in 2017, which built HQLAX on the company鈥檚 Corda blockchain. 鈥淒uring this initial project, we built a prototype of our operating model and received valuable feedback from five global banks on the viability of taking our proof of concept into production,鈥� Stroemer said.
The feedback received was 鈥渞esoundingly positive鈥�, and so production of the platform began with Deutsche B枚rse Group instrumental early supporters, underscored by their strategic investment in the company in 2018. 鈥淭ogether with Deutsche B枚rse Group, we brought the HQLAX operating model into production in late 2019,鈥� Stroemer added.
We have always prided ourselves as being a platform 鈥渄esigned by the industry, for the industry鈥�, Stroemer said, 鈥渁nd we always knew that to achieve scalable market adoption, we would need the support and buy-in from the broader securities finance community鈥�.
HQLAX received important support in 2020, when it successfully closed a Series-B strategic investment round led by BNY Mellon, Goldman Sachs, BNP Paribas Securities Services and Citigroup,with participation from longtime strategic partner Deutsche B枚rse Group.
鈥淛ust very recently we received further industry buy-in when we welcomed J.P. Morgan as our newest strategic investor,鈥� Stroemer added. Not only is the financial backing from these recent investments substantial, but the public commitment from these new investors to connect to the HQLAX platform 鈥渟peaks volumes towards validating our vision to accelerate collateral mobility across the global securities finance ecosystem鈥�, Stroemer said.
Freedom of movement
HQLAX鈥檚 immediate mission statement is to help improve collateral mobility amongst market leading tri-party agents and custodians in Europe, Stroemer said. 鈥淥ur longer-term vision is to accelerate the financial ecosystem鈥檚 transition more broadly towards frictionless ownership transfers of assets.鈥� In order to achieve this vision, HQLAX will expand the depth of its product offering over time and extend the jurisdictional reach of the platform.
Stroemer is cautious of replicating the fragmentation of the past. The genesis behind the creation of HQLAX was to help the industry solve interoperability bottlenecks across a siloed securities settlement system, Stroemer said, 鈥渟o the last thing we want to see now is a siloed ecosystem of DLT platforms across the securities finance ecosystem鈥�.
Looking to the future, Stroemer said HQLAX鈥檚 view of the securities lending and financing marketplace is one in which depositories, for a multitude of asset classes located across the global jurisdictional landscape, are connected by an interoperable network of digital registries. Together, Stroemer concluded, they will facilitate seamless ownership transfers, not only for cash and securities, but also for other asset classes such as commodities, precious metals and digital assets.
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