Improved collateral swap across multiple digital assets (cash/stocks/bonds): Existing process: Both Clearing Members and their clients frequently need to substitute the assets held as collateral at CCPs as their funding strategies change. This necessitates the allocation of surplus collateral, as CCP guidelines strictly prohibit collateral held from falling below margin requirements even temporarily, to prevent any risk of default. What the PoC demonstrated: JSCC verified the technical viability of CCPs enabling seamless collateral substitutions (Delivery-vs-Delivery) using the atomic transactions feature of DLT. This feature allows multiple transactions to be executed as a single unit, ensuring that either all transactions succeed, or all fail simultaneously. This facilitates more flexible and dynamic collateral replacement for institutions, while complying with the CCPs’ risk management requirements. Utilizing on-chain shared data increased transparency, and enabled network participants to keep their collateral and asset positions optimized: Existing process: As market prices fluctuate, it is essential for all parties to regularly recalculate the value of deposited collateral and ensure they can monitor and manage risks in accordance to their own policies and models. Central Counterparties (CCPs) establish rules for various collateral types and offer collateral valuation services to their Clearing Members. However, both sell-side and buy-side entities require their own solutions and data sources for recalculating and optimizing their collateral positions. What the PoC demonstrated: JSCC developed an Oracle node to act as an on-chain database accessible to all entities in the POC. By using the Oracle node as a ‘golden source’ of data coupled with shared smart contracts, sell-side and buy-side entities on the network were able to simulate and optimize their collateral positions under different market scenarios, in near real-time. This significantly improved the ability of network participants to monitor and manage risks, particularly in volatile market conditions. In further phases of the POC, network participants could also use other capabilities being built on the Digital Launchpad to track their wallets and tokens positions in real-time and integrate them with off-chain data to orchestrate actions in their traditional systems and provide critical business intelligence to their operations and risk management teams. Managing user account hierarchies requires experimenting with DLT privacy solutions: Existing process: Especially in the listed derivatives market, the unique and complex structure of ‘omnibus’ accounts presents challenges for ecosystem design. Buy-side client data, housed within omnibus accounts, is managed by individual sell-side clearing members and remains hidden from the CCP. This results in a complex market structure with a hierarchy exceeding three layers. What the PoC demonstrated: To maximize the benefits of digital assets used as collateral for listed derivatives, it is crucial to consider this account hierarchy. JSCC created a tiered application structure allowing sell-side entities to manage their own omnibus accounts through a UI. However, in this setup, the network owner (the CCP in the POC) had access to all data. Addressing this will necessitate DLT-based data privacy solutions or the establishment of comprehensive governance rules.
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DTCC DIGITAL LAUNCHPAD
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