HOW IT WORKS To explore how to deliver capital and operational efficiencies for their clients, JSCC leveraged DTCC’s Digital Launchpad to develop a PoC to examine how the collateral management process could be made more efficient. JSCC built the PoC using a Hyperledger Besu Ethereum network, among the public and private blockchain network options available in DTCC Digital Launchpad. The PoC focused on modelling how margin calls and their associated processes could be automated, made more efficient and transparent for all participants using digital assets and smart contracts – or rules that automatically execute on a distributed ledger when certain conditions are met.
In this use case: See diagram on the next page for all referenced steps.
JSCC created a network consisting of blockchain nodes for sell-side and buy-side institutions, Clearing Members and their clients respectively, on the Launchpad.
Step 1. A Token Issuer node was created to mint digital assets (cash, equity, and bonds) on the network, which supplied the native tokens and assets that could then be moved around and exchanged on the network.
Step 2. A multi-functional smart contract was created to issue and manage margin calls to JSCC’s Clearing Members (sell-side institutions).
The same smart contract was used by Clearing Members to distribute margin calls to their clients (buy-side) and facilitate the end-to-end movement of collateral in response to the calls. Step 3. In the case of clients maintaining segregated accounts with their Clearing Member ( Client B in the diagram ), the JSCC node could directly calculate the portion of the margin call due from the specific buy-side client . Step 3a. For clients maintaining omnibus accounts at the Clearing Members ( Client C in the diagram), the smart contract at the Clearing Member node required the CCP to have a view of the beneficial ownership of the collateral, however further work can be done to shield the CCP from viewing buy-side client account details, and maintain privacy and user account hierarchy between CCPs, clearing members and their clients . Step 4. JSCC created an Oracle node to act as an on-chain shared database on the network to provide network members with static and market data such eligible collateral criteria, latest asset prices, haircut ratios and other information needed for calculating collateral value, simulation, and optimization. JSCC also created a custom user interface which allowed clearing members and their clients to: – Initiate and track transactions. – Fetch real-time asset price and other market data from the Oracle to allow clients to simulate margin call(s) and identify its effect on their asset positions.
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DTCC DIGITAL LAUNCHPAD
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