Broadridge Financial Solutions
A new distributed-ledger technology (DLT) platform for the trillion-dollar global repurchase agreement (repo) market created by Long Island, N.Y.- based proxy communications giant, Broadridge BR Financial is already handling $31 billion worth of transactions daily, despite the fact that it launched a little more than a week ago on June 7th. Most of the volume stems from banking relationships in Europe and the U.S. but the $4.5 billion (revs) financial services firm would not reveal its initial users. It did note that there will be a slate of new, named participants onboarded in July. The total average daily volume of the overnight repo market is approximately $2.6 trillion.
Although a niche element of finance, repos are critical sources of liquidity for the industry. They are short-term loans, typically overnight, between institutions where one party provides securities as collateral in return for cash with the understanding that they will purchase those securities back at a slight premium in the future. The repo market serves asset managers, hedge funds, or banks, to carry out day-to-day operations without having to store their own reserves.
Through increased efficiency and utility of collateral, platform users could see savings estimated to be $1 million for every $200,000 worth of repo trades per year, depending on volume, types of trades, and operating model, according to Broadridge’s head of digital innovation for capital markets and developer of the platform, Horacio Barakat.
“The system today is working, but it could be done much much more efficiently from a clearings and a settling perspective, much cheaper,” Barakat said. “But also you can increase the mobility of the collateral to actually allow firms to better utilize their collateral.”
Additionally, while the platform is self-contained right now, Broadridge is planning to make it interoperable with other blockchain and DLT applications such as Hyperledger or Corda. “How we built the application was to make sure it has flexibility to be able to be deployed on other ledgers,” Barakat said. The platform was built using the DAML programming language and VMware VMW blockchain.
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That said, there is little chance Broadridge will make its system available on public blockchains such as Ethereum, which have struggled to manage high volumes of transactions without network congestion or high fees and are unable to support the throughput needs of the repo market, anytime soon
Finally, it is noteworthy that this is not Broadridge’s first blockchain initiative in the repo market. In 2017, the well-known shareholder communications giant that has been refashioning itself as a fintech announced a successfully completed pilot of its distributed ledger repo platform with French corporate and investment bank Natixis and French investment bank and financial services company, Societe Generale, but it is unclear what transpired since then. Broadridge would not confirm if Natixis or Societe Generale are one of the first two participants on this platform. Broadridge was named a member of Forbes inaugural Blockchain 50 list in 2019.
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Author: Emily Mason, Contributor