The US Options Clearing Corporation (OCC) will replace its securities lending clearing infrastructure with a new distributed ledger technology (DLT)-based system.
The clearing house has partnered with blockchain-specialist Axoni to develop the new system, becoming the latest market infrastructure to turn to the fledgling technology to replace its legacy platform.
Development of the new DLT-based platform is slated to begin in the second quarter of this year and eventual deployment will be rolled out in phases.
“OCC’s role in the securities lending market is to serve as the central counterparty for lenders and borrowers,” said Matt Wolfe, vice president, securities finance, OCC. “We provide a guarantee of performance and mitigate the risk of loss due to a failure by the original lender or borrower. Our work with Axoni seeks to address industry challenges and reduce costs stemming from manual processes, lack of automation, and disparate systems. The new platform lays the foundation for a future-fit CCP securities lending model.”
The new solution will be deployed using Axoni’s distributed ledger protocol, AxCore, which will be hosted in the cloud.
Both companies aim to establish a permissioned distributed ledger network for cleared stock loans, governed by OCC, with the potential for peer nodes at clearing member firms that will provide real-time, accurate copy of contract and activity information, thereby reducing the need for manual reconciliation.
“Deploying distributed ledger technology in production at this scale will be a significant moment for the securities lending industry. The combination of technology and business expertise being applied to this project will generate a variety of benefits for industry stakeholders. We look forward to working with OCC to bring those benefits to the market,” added Ishan Singh, vice president of solutions at Axoni.
As of April 30, OCC balances for cleared securities lending stood at around $72 billion, representing 13% of the total equities on loan across the Americas.
The securities lending market has opened itself up for the deployment of DLT solutions. HQLAx, the highly touted collateral mobility system that uses DLT to create a digital collateral record representing an ownership stake in baskets of securities, executed its first live transactions with Commerzbank, Credit Suisse and UBS at the back end of last year.
Meanwhile, the Australia Securities Exchange (ASX) is still in the process of replacing its legacy equities clearing and settlement system with DLT, and the Hong Kong Exchange and Clearing (HKEX) has also rolled out a blockchain-based system for post-trade processing of Northbound trades executed on Stock Connect.