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Equilend sees cricitial role for DLT for T+1 securities lending
June 29, 2023
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This February the Securities and Exchange Commission (SEC) confirmed that May 2024 is the deadline for shortening settlement times to T+1, with securities lending as one of the sectors most impacted. EquiLend, the securities lending provider that processes $2.8 trillion in daily transactions, is developing a distributed ledger solution, 1Source, that addresses the heart of the challenge. It was initiated before the SEC deadline was set, so its primary objective is to remove reconciliations.

The impact of T+1 on securities lending

The difficulty with the T+1 transition is when someone sells a security that was lent out. The broker either has to use stock from a different client (reallocate it), or recall the security from the borrower. If the securities don’t get returned in time this could result in more trade fails.

Equilend’s Gary Klahr noted the concern at a recent conference was “How are we going to get out the information for recall quickly enough?” He believes he has the answer: DLT. If the data is on a shared ledger, then the parties simply need to check the ledger.

“I think DLT is a necessity for T+1 and there is no obvious way to proceed to T+0 (without DLT), which is the ultimate goal,” said Klahr. 

These concerns exist even though there’s less than a year to go to meet the SEC deadline. However, the 1Source DLT solution has a scheduled launch date of Q3 of 2024, which is after the T+1 transition. 

One can only imagine the pressure to move the target date forward. On the other hand, it’s not uncommon for regulatory compliance dates to be pushed back.

How to eliminate securities lending reconciliations

The original goal of the DLT platform was to remove reconciliations. EquiLend already has solutions ensuring the initial securities lending contract matches between parties. The problems arise with subsequent changes which invariably are done manually by each side and hence often don’t agree. 

For example, rate changes frequently mismatch. Smart contracts will enable one party to propose a rate change and the other to accept it with the result stored on the permissioned 1Source blockchain.

A second key area being addressed is settlement instructions that will need to match at all times. And the third aspect is the recalls, returns and reallocations which will be based on shared data.

A working group of borrowers and lenders have allocated staff to the project and they decide on the priorities. July is the first major milestone when five firms will pilot a contract initiation pilot on 1Source. Next up will be rate changes, followed by multiple iterations with additional functionality.

The Q3 2024 launch will be a minimum viable product (MVP) focused on U.S. cash securities versus cash collateral. After that, the target is certain EMEA markets and then Asia. Over time the functionality will expand to include corporate actions and asset servicing events. 

But Klahr emphasized that if the MVP is expanded then the project will “lose focus on where we’re going.” 

A roadmap of interoperability

The first stage of 1Source is positioned as a DLT of data sharing, versus the more transaction oriented DLT of value. The data is foundational. “It is our goal to interoperate with other DLTs because truly that is the way the clients will get what they want out of the product,” said Klahr.

EquiLend selected Digital Asset as the technology provider after considering four other providers. One of the appeals was the recently launched Canton ledger enabling interoperability with other DAML smart contract networks involving the likes of BNP Paribas, Deutsche Börse and Goldman Sachs.

Repo and collateral DLT products already exist on the market. What EquiLend is launching next year is just the first phase with more functionality to come.

“Equilend will not need to build distributed ledgers for other products,” said Klahr. “EquiLend will have interoperability to connect to other DLT platforms.” He has already held high level conversations with other networks.

Ultimately the 1Source project is about future proofing. 

“I’ve called 1Source the art of the possible. This is a foundational project,” said Klahr. “We know that distributed ledger is the future.”

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Musk Turns On Starlink to Save Iranians from Regime’s Internet Crackdown

Elon Musk, the world’s richest man and a visionary behind SpaceX, has flipped the switch on Starlink, delivering internet to Iranians amid a brutal regime crackdown.

This move comes on the heels of Israeli strikes targeting Iran’s nuclear facilities, as the Islamic Republic cuts off online access.

The former Department of Government Efficiency chief activated Starlink satellite internet service for Iranians on Saturday following the Islamic Republic's decision to impose nationwide internet restrictions.

As the Jerusalem Post reports, that the Islamic Republic’s Communications Ministry announced the move, stating, "In view of the special conditions of the country, temporary restrictions have been imposed on the country’s internet."

This action followed a series of Israeli attacks on Iranian targets.

Starlink, a SpaceX-developed satellite constellation, provides high-speed internet to regions with limited connectivity, such as remote areas or conflict zones.

Elizabeth MacDonald, a Fox News contributor, highlighted its impact, noting, "Elon Musk turning on Starlink for Iran in 2022 was a game changer. Starlink connects directly to SpaceX satellites, bypassing Iran’s ground infrastructure. That means even during government-imposed shutdowns or censorship, users can still get online, and reportedly more than 100,000 inside Iran are doing that."

During the 2022 "Woman, Life, Freedom" protests, Starlink enabled Iranians to communicate and share footage globally despite network blackouts," she added.

MacDonald also mentioned ongoing tests of "direct-to-cell" capabilities, which could allow smartphone connections without a dish, potentially expanding access and supporting free expression and protest coordination.

Musk confirmed the activation, noting on Saturday, "The beams are on."

This follows the regime’s internet shutdowns, which were triggered by Israeli military actions.

Adding to the tension, Israeli Prime Minister Benjamin Netanyahu addressed the Iranian people on Friday, urging resistance against the regime.

"Israel's fight is not against the Iranian people. Our fight is against the murderous Islamic regime that oppresses and impoverishes you,” he said.

Meanwhile, Reza Pahlavi, the exiled son of Iran’s last monarch, called on military and security forces to abandon the regime, accusing Supreme Leader Ayatollah Ali Khamenei in a Persian-language social media post of forcing Iranians into an unwanted war.

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In the wake of hurricanes and earthquakes, Starlink has provided critical internet access to affected communities, enabling emergency communications and coordination.

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The genius entrepreneur, is throwing a lifeline to the oppressed in Iran, and the libs can’t stand it.

Conservative talk show host Mark Levin praised Musk’s action, reposting a message stating that Starlink would "reconnect the Iranian people with the internet and put the final nail in the coffin of the Iranian regime."

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GENIUS Act lets State banks conduct some business nationwide. Regulators object

The Senate passed the GENIUS Act for stablecoins last week, but significant work remains before it becomes law. The House has a different bill, the STABLE Act, with notable differences that must be reconciled. State banking regulators have raised strong objections to a provision in the GENIUS Act that would allow state banks to operate nationwide without authorization from host states or a federal regulator.

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“Critical changes must be made during House consideration of the legislation to prevent unintended consequences and further mitigate financial stability risks. CSBS remains concerned with the dramatic and unsupported expansion of the authority of uninsured banks to conduct money transmission or custody activities nationwide without the approval or oversight of host state supervisors (Sec. 16(d)).”

The National Conference of State Legislatures expressed similar concerns in early June, stating:

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Dubai regulator VARA classifies RWA issuance as licensed activity
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Founders, investors, ecosystem builders:

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Don’t waste another year waiting for clarity.

Come to Dubai.

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If you find value in my content, consider showing your support via:

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