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From revolution to evolution

HQLAX may have started with the revolutionary idea that distributed ledger technology (DLT) could help improve collateral mobility across a fragmented securities settlement ecosystem, but implementation of that idea has been more about integration, synchronisation and evolution. As our CEO Guido Stroemer recently stated: “It’s not only about developing and applying innovative technologies to help solve for pain-points in the markets, but it is also about synchronising these new technological constructs with existing legal and regulatory constructs.”


Put another way, compelling use-cases around transfer of ownership/pledges at precise times during the day mean next to nothing if they can’t actually be followed. This requires that our DLT- driven Digital Collateral Registry (where ownership of baskets of securities can be exchanged at precise times) is synchronised withother parts of our operating model (the front end Eurex F7 Trading System, where trades are initiated, and the Trusted Third Party (TTP), which connects the custodians and triparty agents holding securities to the Digital Collateral Registry) and integrated with the broader financial ecosystem.

«  HQLAX gets down to the nitty-gritty on how DLT technology integrates and is synchronised with the laws and regulations that apply to their scheme »

Matthew Benz, General Counsel, HQLAx

That synchronisation starts with the rule book for the HQLAX scheme, to which all participants sign up. The scheme can be compared to a new network of roads for securities lending transactions to travel more quickly and efficiently towards settlement than is currently possible. Like any set of roads, rules are needed to clarify the rights and responsibilities of the participants that use them, as well as the entities that have built and are tasked with ensuring that they run smoothly and safely for all.

Grown and developed with Clifford Chance, whose expertise includes technology agreements and securities markets, the rule book sets HQLAX ’s and the TTP’s responsibilities to participants with respect to the operation of the scheme and vice versa. It covers: governance, payment, operations, default and liability – describing how the DLT technology integrates and is synchronised with the laws and regulations that apply to the HQLAX scheme.


In a rapidly evolving market, synchronisation is not a one-time-only event, so the rule book is designed to evolve with the technology and the laws and regulations that it brings together. As the scheme changes – whether through the development of new use cases, or as applicable laws and regulations change – the rule book is designed to adapt. The rule book has been built to balance the flexibility that HQLAX and the TTP need to ensure the smooth and fair operation of the scheme with the legal and operational clarity that participants require to continue trusting the scheme with their securities lending transactions. Consistent with our long-standing aim to be a platform “by the markets, for the markets,” HQLAX and the TTP take into account feedback from participants when considering changes to the rule book.


HQLAX will continue to expand its product footprint to address specific pain points in the securities lending markets – from the collateral upgrade/ downgrade transactions that we enable today to the digital collateral record re-use, intraday trades, delivery- versus-payment (DVP) trades and support for various types of pledges that we envision for tomorrow. But we are keenly aware that the “new order of things” to which we are committed in the securities lending markets requires synchronising revolution with reality. “New” technology is of little use if there’s no “order” about it.


The rule book is where revolution meets the real world, spelling out in concrete terms how the HQLAX scheme synchronises technology and applicable laws and regulations and thereby powers the evolution of the securities lending markets.

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