ING invests in securities lending platform HQLAX

HQLAX originally started as an incubator project at R3 and the initial prototype was done as an R3 Lab with five banks. One of the banks was ING and their team developed much of the prototype’s code.

Following on from that was a live pilot in 2018 with ING and Credit Suisse. In November 2019, the startup launched its collateral management solution built together with the Deutsche Börse, which to date, was the startup’s principal outside investor. The first postproduction transactions in November 2019 were between Credit Suisse, UBS and Commerzbank.

The platform enables banks to swap High-Quality Liquid Assets (HQLA) such as government securities, bonds, and equities. Today banks around the world hold USD 13 trillion in HQLA. The collateral is held in custody, and when there’s a swap to upgrade or downgrade a portfolio, usually the custodians or collateral agents must legally transfer ownership and move the assets. Instead, with HQLAX there’s a digital collateral record (DCR), and the transfer happens on-chain, thereby enabling intraday swaps.

It’s made possible by a Trusted Third Party owned by the Deutsche Börse that sits between the custodians (tri-party agent) and HQLAX. Therefore, the collateral stays with the original agent.

The commercial launch of HQLAX is a big milestone for the implementation of blockchain in the securities lending market. HQLAX is in the process of onboarding at least 15 new members, including CIBC, Citi, Goldman Sachs and ING. The tri-party agents involved at launch were Clearstream Banking and Euroclear Bank, and JP Morgan is expected to be live in the Q2, 2020.