Investment Operations

OCC Seeks to Modernize Securities Lending Infrastructure

Blockchain Data Initiative

Options Clearing Corporation, the world’s largest equity derivatives clearing organization, confirmed this week that it had 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. The announcement, said the company, 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.

According to company literature, 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.

“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.”

Development is slated to begin in the second quarter of 2020, and eventual deployment will be rolled out in various phases, OCC said in a statement. 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 said that they, Axoni, and OCC clearing member firms have identified several opportunities to further streamline processing within the marketplace once the baseline platform has been established.