Today, Broadridge announced that its Distributed Ledger Repository (DLR) solution is live. In 2017, it launched a first bilateral rest pilot with Natixis and Société Générale.
While the company has not indicated which institutions are currently online on the platform, it did share that the average daily volumes in the week since launch have been $ 31 billion. According to SIFMA, the size of the repo market in the United States in terms of average daily assets was $ 4.5 trillion in 2020. It is therefore not surprising that Broadridge quickly managed to reach a certain scale as its conventional systems process repo transactions for 19 of the 24 major dealers.
A typical repo transaction occurs when a financial institution borrows money by selling securities, often treasury bills, and agrees to buy them back at a slightly higher price in the near future. For the cash borrower, it fulfills a short-term need for cash, and for the other party, it may seek to hold a particular type of collateral or collateral. According to the BIS, in some markets today the demand for specific collateral is often a more important driver than cash.
The DLR allows the agreement, execution and settlement of repo transactions on a single ledger. The underlying collateral is locked and tokenized, allowing ownership to be transferred using smart contracts. Settlement is effected by triggering payment on conventional payment rails rather than cash on the general ledger. The transaction is atomic, so the payment and the transfer of ownership are simultaneous, which reduces the counterparty risk.
The platform targets intraday, day-to-day and term repo’s, as the Broadridge team previously explained that clients don’t want separate solutions for each type of repo.
The solution enables intraday transactions which provide new options for treasurers. But other than that, blockchain-based deposits eliminate failed transactions and remove reconciliations.
“This is the first step in transforming the global $ 10,000 bilateral repo market using smart contracts and distributed ledger technology,” said Vijay Mayadas, president of capital markets at Broadridge.
“By co-innovating with market players, we are able to provide our customer network with solutions that create the next level of operational efficiency. Within the repo market, distributed ledger technology and smart contracts have shown that they can play a critical role in improving efficiency, reducing risk, and improving liquidity while leveraging made use of existing legal and accounting frameworks.
In terms of technology, DLR uses DAML smart contracts combined with VMware Blockchain.
Meanwhile, in December of last year, JP Morgan said its blockchain division Onyx had developed an intraday repo transaction platform. While Broadridge has the advantage of serving 19 of the 24 primary dealers, JP Morgan has different. Research conducted in late 2019 by the BIS showed that the Big Four U.S. banks play an important role as lenders in the repo market. JP Morgan is therefore itself a major player in the repo market. Additionally, its JPM Coin solution has the potential to provide liquidity on the ledger instead of having to depend on payment rails, although the underlying liquidity must be held in a JP Morgan bank account.