Nasdaq Blockchain Pilot Handles Margin Calls and Collateral Delivery 'Within Minutes'

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 ‘maintenance margin’ - 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 “not well-served” 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 “significant” 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 “demonstrated that a shared, resilient network can be built between collateral givers, collateral takers and intermediaries,” enabling parties “to handle the margin call, the securities collateral delivery and the return process within minutes.”

Coen van Walbeek, Global Head of Treasury and SBL at ABN AMRO Clearing, is quoted as saying that the PoC is “a breakthrough for the CCP model,” with the head of Nasdaq Clearing adding that the project is an “excellent example” of blockchain technology’s “huge potential to transform markets everywhere.”

Nasdaq’s partners in developing the new blockchain PoC are among the world’s leading financial service firms. Euroclear holds “€28.6 trln” in clients’ assets, ABN AMRO Clearing, processes “over 16 mln” trades daily and “is consistently ranked as a top 3 clearing house in most time zones, and EuroCCP is “the most connected CCP in Europe,” with “access to 82% of equity trades executed on 26 trading platforms.”

Earlier this month, Nasdaq’s CEO Adena Friedman said that while blockchain technology still needs development to improve its scalability, the technology could potentially in future address the “massive inefficiencies” on private securities markets, and is a “fascinating technology that could be quite disruptive” over the long term.

In April, the CEO said that if regulatory clarity will be forthcoming, “certainly Nasdaq would consider becoming a crypto exchange over time.”