Core Insights - Chengdu's historical significance in finance and its role in the future of financial infrastructure is highlighted, particularly focusing on collateral tokenization as a response to challenges faced by banks, regulators, and investors [1] Group 1: Liquidity Constraints and Collateral Management Inefficiencies - Post-2008 financial crisis regulations have reshaped the banking landscape, introducing key metrics like capital adequacy and liquidity coverage ratios, which require banks to maintain sufficient capital and liquidity buffers [2] - As of the end of 2017, European banks held €10.8 trillion in high-quality liquid assets, with approximately €2.7 trillion above regulatory minimums but unable to be mobilized, resulting in "trapped liquidity" costing banks €13.5 billion annually [2] - Traditional settlement systems struggle to quickly transfer collateral or achieve precise, synchronized settlements across different custodians, leading to uncertainty due to asset mismatches and credit risks [2] Group 2: Distributed Ledger Technology (DLT) Solutions - HQLAX aims to leverage DLT to address liquidity issues by enabling the transfer of securities ownership on the ledger without physically moving the securities [3] - The successful completion of the first cross-custodian collateral swap by three global banks in December 2019 demonstrated the feasibility of ownership transfer without physical movement, marking a significant step towards interoperability of collateral across infrastructures [3] Group 3: Challenges in Securities Financing, Repo, and Margin Practices - Securities financing is crucial for liquidity management but introduces intraday credit risk, with daily settlement risk exposure estimated at $80 billion, potentially rising to $119 billion under stress scenarios [4] - The Basel Committee has called for enhanced monitoring of intraday credit risk, which is not currently covered by a clear regulatory framework, emphasizing the need for innovation to improve market resilience [4] - DLT is positioned as a key tool not only for efficiency but also for meeting regulatory requirements by enabling synchronized settlements across custodians and accurately recording transaction times [4] Group 4: Enhancing Collateral Flexibility and Quality of RMB Collateral - Increasing collateral mobility can enhance market efficiency and the attractiveness of securities, as reusable securities can boost investor demand and serve as liquidity sources [5][6] - The principle of collateral reuse is particularly relevant for high-quality RMB collateral, such as Chinese government bonds, which are increasingly viewed by international investors as both investment tools and cross-border collateral [6] - Developing compliant collateral flexibility mechanisms within a transparent regulatory framework can drive international demand and promote the globalization and scalability of RMB bonds [6]