Settle repo transactions in minutes using blockchain
Revolutionizing intraday financing with a blockchain-based solution
Managing intraday cashflows is an essential part of a financial institution’s liquidity management program. Traditional intraday financing solutions, such as intraday credit facilities and overnight repo agreements, can be costly and prone to operational friction. Digital Financing is a revolutionary alternative that streamlines intraday financing, reduces borrowing costs and optimizes capital deployment.
Background
A global financial institution regularly utilized intraday credit facilities and overnight repo agreements to manage intraday cashflows as part of its liquidity management.
Although traditional outlets for accessing short-term secured financing were available to them, the financial institution wanted to explore an alternative solution in order to reduce its intraday borrowing costs and solve operational challenges that typically occurred when using its existing funding sources.
The challenge
Operational friction within their traditional processes included:
Settlement risk:
Manual trade entry errors and collateral inventory mismanagement created settlement risks that resulted
in operational inefficiencies.
Data transmission errors:
Complexity in liquidity management infrastructure introduced heightened risk for potential
error. For example, the details of trade executions were fed to various operational systems handling risk management and
settlement. A data transmission error within these systems risked causing a delay in trade settlement and access to
funding.
Suboptimal capital management:
The inability to precisely determine when the institution would receive funding due to
uncertainty around settlement timing as well as prolonged delays caused by settlement failure, occasionally led to
setbacks in capital deployment, resulting in further stress within operational processes.
The solution
Digital Financing, a blockchain-based application powered by the Onyx Digital Assets platform, offers an innovative solution to address this financial institution’s pain points. Digital Financing can provide access to secured intraday financing using repurchase agreements to meet the financial institution’s daily funding requirements.
Intraday repurchase transactions have provided a more cost-effective borrowing rate when compared to that offered by the institution’s existing intraday credit facility provider and do not require balance sheet usage as is required when executing overnight repo transactions. Here’s how the Digital Financing application provided major solutions to their challenges:
Risks stemming from collateral inventory mismanagement are mitigated by requiring the institution to segregate its
collateral prior to submitting a request for funding, which greatly reduces the likelihood of delays in settlement.
Using an end-to-end application simplifies the entire process from quote to maturity,
eliminating duplicative processes
and reducing the need for reconciliations traditionally required to identify manual trade entry errors.
Transacting over blockchain provides real-time transparency of the trade lifecycle,
with the application enabling the
feeding of trade details directly into existing systems, thereby ensuring full transparency across the organization.
Programming settlement and maturity timing of funds allows for precise planning
for liquidity requirements and
optimization of capital deployment based around organizational needs.
This solution powers this financial institution’s ability to receive intraday funding fast and has reduced their operating costs by 56%.
Here’s how Digital Financing provides access to secured intraday financing
“Digital Financing allows us to execute repo transactions at speed, that previously weren’t supported through traditional means and access a new, alternative intraday financing source. We see this solution as an active cash management tool that enables us to access secured intraday funding in just a few clicks, while also considerably reducing our costs of funding.”
— Vice President, Fixed Income Repo Trader at Global Financial Institution
The results
Digital Financing enabled the global financial institution to access faster, more cost-effective, and secure intraday funding without the need to tap into their balance sheet. The solution also delivered:
A 56% decrease in the borrowing rate when compared to its traditional intraday credit funding solution1
Ensured near instantaneous delivery-vs-payment settlement
Resulted in near-zero touch settlement for operations
Digital financing delivered unprecedented efficiency gains for the financial institution and proved to be a game-changer for optimizing its financing operations.
Conclusion
Digital Financing is transforming access to secured intraday financing. The blockchain-based application delivers unmatched efficiency gains and has revolutionized traditional intraday financing solutions by providing access to a more cost-effective, faster, and secure alternative to traditional intraday credit facilities and overnight repo agreements. Digital Financing enables financial institutions to optimize capital deployment, reduce operational risks and costs, and streamline intraday financing operations, simply.
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