OCC To Replace Securities Lending Infrastructure With DLT
OCC, the world’s largest equity derivatives clearing organization, announced that it has selected Axoni, a technology firm that specializes in multi-party workflows and infrastructure, to develop and implement a distributed ledger technology solution to replace its existing securities lending infrastructure. Today’s announcement marks another milestone for OCC’s transformation as this new, innovative technology addresses fundamental challenges in the securities lending industry and will benefit OCC’s clearing member firms by increasing efficiency and reducing reconciliation and associated costs.
— OCC (@OptionsClearing) May 5, 2020
OCC’s stock loan program was created in 1993 to clear and guarantee transactions between its clearing members, with OCC serving as the central counterparty (CCP) to lenders and borrowers. Since 2012, stock loan clearing volumes have increased by a compound annual growth rate of 16%, while open interest has grown by 22%. As of April 30, OCC balances were approximately $72 billion, which is about 13% of the total equities on loan across the Americas.
Development is slated to begin in the second quarter of 2020, and eventual deployment will be rolled out in various phases. The solution will be deployed using AxCore, Axoni’s distributed ledger protocol, and is slated to be hosted in the cloud. The vision of the initial roll-out is to establish a permissioned distributed ledger network for cleared stock loan transactions, governed by OCC, with the potential for peer nodes at clearing member firms that will enable participants to have a real time, accurate copy of contract and activity information, thereby reducing the need for manual reconciliation. OCC, Axoni, and OCC clearing member firms have identified several opportunities to further streamline processing within the marketplace once the baseline platform has been established.
“OCC’s role in the securities lending market is to serve as the central counterparty for lenders and borrowers,” said Matt Wolfe, OCC Vice President, Securities Finance. “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.”
Ishan Singh, Vice President of Solutions at Axoni, said, “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.”
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