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Think for a moment about the complexity of bilateral repo.
With so many parties involved in a broad range of transactions, it's hard to manage risk and ensure liquidity.
Working with sell side and buy side firms, Broadridge has developed an innovative solution that adds efficiency and reduces risk to repo agreements.
Using distributed ledger technologies and smart contracts, we make it possible to detach the collateral from the trade agreement so you can streamline operations and mitigate risk.
The first step is tokenization. Each token created is a one to one representation of a specific collateral.
At this point, the collateral is locked in a custodial location and the token is available on the issuers wallet in the distributed ledger platform.
Now, when party A and party B agree on terms, a smart contract is created and validated by the counterparties with all the information necessary to manage the life cycle of the repo agreement.
Once executed, the token moves from party A to party B and the locked collateral becomes the property of party B.
Simultaneously, the cash instructions are generated and cash moves to party A.
Now party B has rights to the collateral and can enter into an agreement with party C.
The same process as before takes place with the collateral and cash transfer.
As part of this new repo transaction, the locked collateral now becomes the property of party C.
The distributed ledger repo platform also simplifies all midlife events, including collateral substitution.
In the platform, you can substitute one token for another based on the eligibility terms embedded in the smart contract.
Once the repo term expires, the smart contract directs the tokens from one counterparty to another.
At any point in time, the holder of the token can redeem that token and reconstitute the collateral, freeing it up for other uses.
Several sell side and buy side firms support our distributed ledger repo platform where they can create tokens and lock collateral in a custodial location, add tokens to their digital asset wallet ready to be traded, capture repo trades and generate smart contracts, notify participants, finalize the agreement and execute the trade, plus manage and track the repo transactions end to end.
Once fully deployed, firms will be able to connect the distributed ledger repo platform directly to their own front and back office systems, further streamlining their repo process.
Benefits of the distributed ledger repo platform include significant operational efficiencies, reduce counterparty risk and increase liquidity for all securities types.
Speak with Broadridge today and discover what Distributed Ledger Repo can do for you.
Ready for next.