Enhancing post-trade efficiency for better investments

Welcome to MarcoNet

MarcoNet is the next generation margin and collateral network. It allows CCPs, Banks and Investors to manage margin calls and collateral transfers on a real-time basis. MarcoNet’s blockchain-based network improves efficiency in transactions resulting in better investor returns and higher trust.

A trade is a buyer and a seller coming to an agreement on exchanging securities for cash, usually at a stock exchange via their brokers. After that comes post-trade. It can be complex and in parts manual. The purpose is to finalise the trade in a safe manner, under any circumstance. If, for example a party in the value chain goes bankrupt, the investor (like pension schemes) should be kept unharmed. An important safety net are margin calls and collateral. During turbulent times, the margin calls can be significant. This ties up investment capital in cash buffers and credit lines to be available when margin calls are made and shall be met in a timely manner. MarcoNet brings the investors and post-trade parties together, speeds up the end-to-end process, removes manual tasks and reduces the need for buffers.

The Challenge

The regulation increases the need to hold enough high-quality collateral, at the right place, in right form, and at the right time to meet the stringent margin requirements in EU. This is already a reality for institutional investors complying with EMIR.

Studies on the impact of EMIR on pensions schemes shows that it can be up to 3.66% less return on 20-40 years of pension savings. This is due to required cash buffers that else would have been invested with a better return. The same would apply for any other investment activity falling under EMIR.

  • Margin calls need to be met within an hour instead of up to a week.
  • Without an exemption, pension schemes might be hard hit for need of cash
  • Post-trade settlement may face delays
  • With current requirements and infra, the cost of PSA clearing would be ~3 billion euro per year when their exempt ends
  • A 1% move in rates is estimated to require 200-400 billion euro in cash collateral only from EU PSAs

The MarcoNet Advantage

Sponsor & Partner

MarcoNet is backed by funding from Vinnova, the Swedish innovation agency, and is showcased under Vinnova’s Collaboration projects in cybersecurity and digital infrastructure.

With the removal of European Market Infrastructure Regulation’s (EMIR) exempt on Swedish Pensions Funds for the need of collaterals to back transactions, it is estimated that Swedish retirees might lose in excess of 200 million Euros per year with current infrastructure.

If pension schemes can provide securities as collateral, cost will be minimised. MarcoNet makes this possible and is being supported and part funded by Vinnova to meet this objective.

The MarcoNet Pilot

MarcoNet is a collaboration between traditional post-trade and modern financial technology to address a current challenge for future savings. You are welcome to join. This is what we are achieving:

Better Collaboration and Trust

EMIR’s safety and protection at a minimal cost. Post-trade automation and controls. Better data sharing and safety.

Lower Operational Cost

Better performance and scalability at a lower cost through digitisation, end-to-end.

Securities as Collateral

Leverages existing assets more efficiently. Lower need for cash buffers. Better return.

Transparency and Data Quality

Single source of truth for data. Better transparency and control. Effective audit trail.

Contemporary Service

Modern easy to use application. Latest technology. On-demand pricing. Cloud service.

The DLT Advantage

Post-Trade benefits, reduced costs, lowers risks, High scalability and Performance, Better Governance.

Better Collaboration and Trust

Improves standardization of process and data. Lower friction and delay with fund transfer and optimisation. Lower settlement cost.

Lower Operational Cost

24/7 availability of collateral. Improved collateral fluidity. Lowers technology investments. Client application with automation.

Securities as Collateral

Leverage existing client assets. Lower balance sheet impact. More time for optimisations.

Transparency and Data Quality

Single source of truth for data. Improved post-trade reconciliation and automation.

Contemporary Service

Scalability and Performance. API integration with existing systems and custom automation. On-prem and cloud hosting.

The DLT Advantage

Auto Reconciles collateral positions, cross border settlements, High scalability and Performance, Better Governance.

Better Collaboration and Trust

Better CCP risk management. Efficient processing end-to-end, all the way from the investor.

Lower Operational Cost

Lower operational cost with fewer exceptions and manual interventions.

Securities as Collateral

Better options for investors.

Transparency and Data Quality

Single source of truth for data. Better visibility of dependencies. Improved post-trade reconciliation and automation.

Contemporary Service

24/7 availability. Uninterrupted service with redundancy and fall-backs. On-prem, hybrid or cloud hosting.

The DLT Advantage

Reducing counterparty credit risk, more accurate collateralisation, improves mobilization processes, High Scalability and Performance, Better Governance.

Blog

End to end margin call process in place

The process starting with a margin call and ending with a fulfilled margin call is now in place. With process […]

First dashboard for Clearing members

The clearing member dashboard is similar to the CCP dashboard with some additions relevant to the role as a clearing […]

A first version of the CCP dashboard

Now we have the CCP dashboard in an early version. It is a comprehensive overview of: Margin calls, substitutions and […]

Get the updates

We are building MarcoNet right now. Stay up to date! Register your interest below and we keep you posted.

    FAQ

    What is MarcoNet?

    MarcoNet is a system and a network that makes the handling of margin requirements and collateral movements more efficient. It provides efficiency through better integration and digitalisation throughout the collateral chain.

    Who can benefit from MarcoNet?

    MarcoNet supports the parties in the collateral chain from an institutional investor, like a pension fund, to their bank or broker to the CCP, CSD and to the counterparty on the other side of an exchange trade or derivatives contract. Ultimately it is the beneficiaries of the pension fund that gain a better return.

    What are the advantages of using MarcoNet?

    Banks and brokers get process efficiency. It has been estimated that his type of solution can improve efficiency by 50-85%.

    Institutional investors can hold a smaller cash buffer and be better invested.

    CCPs can provide a better safety net when the collateral process is automated end-to-end.

    How does MarcoNet simplify the transaction process?

    MarcoNet makes collaboration more efficient by providing…

    How does MarcoNet improve transparency?

    MarcoNet is a somewhat different database. MarcoNet is a transaction log where the current state is derived from the transactions. It means that it is the transactions and their specific order that is stored. With that, any given moment in time can be restored based on the sequence of transactions. Traditional systems stores the current state. There are transaction logs but not in such a way that the bigger picture can be restored.

    What Technology is being used in MarcoNet?

    MarcoNet is a blockchain-based system with a web application and open APIs. For this application, it means that it is easy to use on any device allowed with a safe and distributed server-side and all the tools to integrate with existing systems.

    How soon is MarcoNet able to meet the needs of collaterals once implemented?

    With MarcoNet a margin call can be met in just a minute.

    How does the EMIR PSA exempt affect the Pension Funds?

    Who pays for MarcoNet?

    MarcoNet is currently funded by Envirio Consulting AB and Vinnova, the Swedish innovation agency.

    How is MarcoNet supported?

    Envirio supports and maintains the specific functionality of MarcoNet. MarcoNet is built on OpenSource, like Linux, Hyperledger Fabric (contributed by IBM) and React (contributed by Facebook) that has strong support from the developer community and the IT industry. The approach provides state-of-the-art functionality on a solid foundation.

    How can MarcoNet improve business continuity?

    A bank, CCP or CSD would typically operate MarcoNet on three nodes, located in-house, outsourced, or in the cloud. If one node is down, there is no degradation. If two nodes are down, data is still consistent and available but new transactions are limited. If all nodes are down, there are traditional contingency measures. The network, as a whole, is just impacted by the missing services, no cascading effect. Parties in the network can stand in for each other if allowed, to provide further resilience and redundancy. There is no single central party that can fail.

    How can MarcoNet help Investors?

    Today’s trading has a high cost due to the increased amount of required collateral that has to be exchanged with the CCP or bilaterally. DLT and smart contracts could optimise the calculation and posting of margins more efficiently, thereby realising financial cost savings for market participants. As the cost of transactions are brought down by MarcoNet, the Investors are the best beneficiaries.

    MarcoNet’s DLT technology is transforming the collateral and settlement experience, making end-to-end transactions as efficient, fast and cost-effective as they can and should be.

    How does MarcoNet help OTC Derivatives?

    OTC derivatives nowadays involves a variety of manual actions and burdensome tasks including the continuous valuations, maintenance of records about ownership, and arrangements of cross-system margin obligations. OTC derivatives trading is more costly due to the increased amount of required collateral that has to be exchanged with the CCP or bilaterally. MarcoNet optimises the calculation and posting of margins more efficiently, thereby realizing financial cost savings for market participants. Marconet can be used to reduce the long custody chains that are involved in cross-border transactions of exchange-traded securities, but especially in case of OTC derivatives transactions.

    Why Banks?

    Banks are facing increasing regulatory requirements for liquidity and capital, which are pressuring their earnings; there is a clear market need for a platform that can source and monetise liquidity efficiently, effectively, and transparently.

    How does MarcoNet help Banks?

    The existing trade finance systems that the Banks rely upon are disconnected, slow and prone to inaccuracies. DLT allows the Banks to create comprehensive and reliable data records which are impossible impossible to alter or forge. It is also possible to backtrack transactions to verify their legitimacy.

    MarcoNet also offers the possibility to improve speed with which Banks conduct payments while lowering the transactional costs substantially.

    As the trade finance processes shift from paper to electronic ones DLT Trading will become replace them.

    SME customers will secure and accelerate the order-to-settlement process, as it is quicker than the traditional exchange of documents, and with the required traceability. The platform’s end-to-end transparency will give SMEs confidence to initiate trade with new partners in their home market or internationally. The settlement speed of MarcoNet meets the new settlement guidelines and will improve speed of doing business.

    How does MarcoNet complement the CCP?

    The CCP plays a vital role as a risk manager if one of the counterparties to the trade becomes insolvent. The CCP has privileged status under law to ensure that the trade can continue to settle, because it interposes itself between both sides, and guarantees the settlement of the trade for a non-defaulting party even if another counterparty defaults. A blockchain-based system that operates by providing instantaneous settlement on the blockchain wouldn’t be useful for derivatives, where settlement is necessarily non-instantaneous. Without there being a central counterparty to manage the risk of default, there would be significant legal uncertainties as to what would happen if one of the counterparties was to go insolvent.

    MarcoNet supports CCPs:

    In a margin calls until the margin call ad-hoc with an hours independent of using securities or cash.
    MarcoNet makes existing business relations more efficient, using traditional assets.
    Allows CCPs to avoid cash collateral which has low or negative returns

    About us

    Envirio Technology AB is a FinTech company driving digitization and process excellence, primarily in the post-trade space applying blockchain technology. Envirio is building the MarcoNet platform based on its core principles of:

    • Ease of use
    • Safety and stability
    • Agile approach

    Envirio utilises open source technologies, like ReactJS, Hyperledger Fabric, Kubernetes, OpenAPI, and Linux, to ensure a transparent, widely adopted and well maintained foundation.

    Björn Svensson is our post-trade subject matter expert with a background as Head of Marketing at EuroCCP, Head of Nordic Markets at EuroCCP and CIO at Euroclear Finland and Sweden. Björn has participated at ECB T2S TaskForce on FinTech and DLT/Blockchain and has a solid 15+ years experience in post-trade.

    Contact

    Envirio Technology AB
    Stockholm, Sweden

    Phone: +46 8 203310
    Email: info@envirio.co