Securities Finance Times feature article

Guido Stroemer at HQLA^X explains how the company’s distributed ledger technology that drives collateral mobility lays the foundation for its long-term vision of transitioning to a frictionless model of asset transfers

HQLA^X President and CEO Guido Stroemer believes the main challenge in transforming the securities lending industry through distributed ledger technology (DLT) is human nature’s resistance to change. Implementing innovative emerging technology solutions is hard work, Stroemer told SFT, because it requires close collaboration and broad consensus, not only with direct partners and supporters, but also among perceived competitors. To illustrate his point, Stroemer cited Niccolò Machiavelli’s 16th century political treatise, The Prince –

“There is nothing more difficult to take in hand, more perilous to lead, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has enemies in all those who benefit from the old order, and only lukewarm defenders in all those who would benefit from the new order, this lukewarmness stemming in part from the fear of their adversaries … and in part from the unbelief of mankind, who don’t really believe in something new until they have actually experienced it.

“This quote captures the essence of the challenges facing any change agent,” said Stroemer, and it applies to HQLA^X by applying innovative DLT technology to help improve collateral mobility in the securities finance ecosystem. “Fortunately, HQLA^X has received strong support from historical market players since our inception, and this support continues to grow day by day.

Movers and shakers

On the origins of the DLT initiative, Stroemer said that HQLA^X started as a proof of concept project in R3 Laboratory, a DLT and blockchain software development company, in 2017, which built HQLA^X on the company’s Corda blockchain. “During this initial project, we built a prototype of our operating model and received valuable feedback from five global banks on the viability of bringing our proof of concept into production,” said Stroemer.

The feedback received has been “overwhelmingly positive”, and production of the platform has therefore started with the early supporters of the Deutsche Börse Group, highlighted by their strategic investment in the company in 2018. “With the Deutsche Börse Group, we brought the HQLA^X operating model in production at the end of 2019, ”added Stroemer.

We have always prided ourselves on being a platform “designed by industry, for industry,” said Stroemer, “and we always knew that to achieve scalable adoption in the market, we would need the support and buy-in from the broader securities finance community. ”.

HQLA^X received significant support in 2020, when it successfully closed a strategic Series B investment round led by BNY Mellon, Goldman Sachs, BNP Paribas Securities Services and Citigroup, with the participation of long-time strategic partner Deutsche Börse Group.

“Most recently, we received a new buy-in from the industry when we welcomed JP Morgan as our new strategic investor,” added Stroemer. Not only is the financial support for these recent investments substantial, but the public commitment of these new investors to connect to HQLA^X The platform “speaks volumes about validating our vision to accelerate collateral mobility in the global securities finance ecosystem,” said Stroemer.

Freedom of movement

HQLA^XS immediate mission is to help improve collateral mobility among the main tripartite market agents and custodians in Europe, Stroemer said. “Our longer term vision is to accelerate the transition of the financial ecosystem more broadly to frictionless asset ownership transfers.” In order to realize this vision, HQLA^X will broaden the depth of its product offering over time and expand the platform’s jurisdictional reach.

Stroemer is careful not to reproduce the fragmentation of the past. The genesis of the creation of HQLA^X was to help the industry resolve interoperability bottlenecks in a siled securities settlement system, Stroemer said, “So the last thing we want now is a siled ecosystem of DLT platforms. in the securities financing ecosystem “.

Looking to the future, Stroemer said HQLA^XThe perspective of the securities lending and financing market is one in which custodians, for a multitude of asset classes located in the global jurisdictional landscape, are connected by an interoperable network of digital ledgers. Together, Stroemer concluded, they will facilitate seamless transfers of ownership, not only for cash and securities, but also for other asset classes such as commodities, precious metals and digital assets.