Post-trade
Lifecycle Management
Tokens representing a digital twin of real-world or native digital assets on blockchain, with platforms managing the creation and distribution of these tokens, including compliance.
Issuers make their financial products, including digital assets, available to investors and match them through different distribution platforms and intermediaries.
To ensure smooth exchange of assets, all trading infrastructure needs to be seamlessly integrated with traditional OTC workflows for efficient trading.
Use Cases
We are focusing our efforts on solving six market-validated primary use cases. Together they address critical challenges in the market.
Use case 03
Enabling
Collateral Mobility
Expanding the range of assets eligible for collateral, and facilitating their rapid and efficient transfer between custodians, reduces risk and increases returns on capital.
Problem
Higher interest rates and increased volatility are leading to more frequent re-posting of collateral assets, resulting in increased cross-entity asset movement. This complicates the optimisation of collateral pools and exacerbates the drag on unfunded assets. Additionally, new regulations such as Basel III, along with the transition to T+1 settlement for U.S. treasuries, are intensifying industry pressures.
Who Benefits
- 1.
Primary
C-level or Head of Trading,Product and Operations - 2.
Secondary
Compliance
Managers
Funds
Modules
Console
API
Entity Set-up
Blockchain Services
Solution
The Tokenovate Platform facilitates the use of digital assets for making margin calls and settling derivative trades. It allows the creation of digital asset tokens for various use cases using smart contracts to automate and enhance the management of collateral for margins by setting specific ownership rules.
Particularly for initial margins, the first trading party can lock digital assets into a smart contract for the benefit of their counterparty. In the event of a default, full beneficial ownership transfers to the counterparty. However, until a default occurs, the first party retains the economic benefits of the asset while fulfilling their initial margin posting obligations, streamlining the process and enhancing capital efficiency.
Tokenovate’s adoption of the ISDA eligibility rules matrix automates and provides greater control, flexibility and efficiency in managing margin capital.
Digital assets used for margin and settlement are stored within an entity’s account ledger as UTXOs. Smart contracts determine what the token can be used for, effectively defining its ‘type’ based on the underlying asset type and value, which includes the entity’s rights, privileges and permissioning rules. This structure is governed by ‘key authority,’ enabling automatic authorisation of all payments. All transactions for margin and settlement are executed on-chain, ensuring they remain within the blockchain network.
Use case 04
Eliminating reconciliation
This use case represents a game-changing opportunity to reduce resources, costs and risks in the post-trade reconciliation process for OTC derivative trades. This improvement comes from utilising a complete, verified and ISDA-standardised set of trade metadata.
Problem
OTC trades are complex, involving multiple methods to summarise the necessary metadata that defines the economic cash flows within the trade. Throughout its lifecycle, a trade counterparty must repeatedly reconcile trade details both internally and with the opposing party, and metadata may also change due to scheduled trade events. This process is time-consuming and prone to errors.
Who Benefits
- 1.
Primary
C-level or Head of Operations, Risk Managers - 2.
Secondary
Compliance
Managers
Funds
providers
Modules
Console
API
Entity Set-up & Management
Blockchain Services
Solution
When the Tokenovate platform ingests a trade file from an industry platform, it creates and verifies a golden record of the trade’s metadata on the blockchain (see use case 1).
Utilising ISDA CDM functionality, the platform tracks and records every change in state triggered by economic or non-economic events throughout the trade’s life. This ensures that all relevant data for all trade events that is needed for reconciliation is maintained in a complete, accurate and verified state.
Additionally, this data is standardised and accessible to both trade parties, facilitating easy and efficient reconciliations. Data fragmentation across multiple systems is eliminated, streamlining the process of compiling data into a usable format for reconciliation.
Looking ahead, the continued rollout and adoption of ISDA Create will enhance this process. ISDA Create allows financial institutions to extract key structured legal and commercial data while automating the creation, negotiation and execution of key derivatives documentation. This integration of the ISDA master agreement and collateral rules will further streamline and automate the reconciliation process.