- Fourteen large banks have trialled a platform for intraday FX swaps and intraday repo and a subset of so-called ‘Key Participant’ banks are planning to go live
- Intraday FX swaps are an important innovation for banks, where traditionally the shortest tenor transactions are overnight FX swaps
- The initiative has the potential to save each of the Key Participant banks millions of dollars every year and the Key Participant opportunity is open to all banks
- FX and Repo are among the world’s largest and most liquid markets
- The collaboration with Euroclear and the addition of Repo are exciting steps forward for the initiative
- Finteum is improving on its DLT-based platform and expanding to DLT and non-DLT settlement
Treasury and technology teams from fourteen large banking groups, including NatWest Group, BNY Mellon’s corporate treasury function, Barclays, Citi and 10 additional banks have trialled a platform by London-based fintech Finteum. The solution helps banks to manage intraday liquidity through the development of new interbank markets. The platform will go live in 2023.
The platform enables payment-vs-payment intraday FX swaps as well as delivery-vs-payment intraday repo transactions. The banks were headquartered across Europe, North America and Asia and were joined by representatives from national prudential authorities and liquidity experts from UK Finance, the collective voice for the banking and finance industry, who observed. The combined balance sheets of the participating banks was $19.8 trillion – among the largest group of banks ever to trial a new piece of market infrastructure.
Three large European banking groups, a subset of the 14 that participated in the trial, have already committed to go live on the Finteum Platform in Q2-Q3 2023, with real-money test trades expected later in 2022. These so-called ‘Key Participant’ banks also help to influence the development priorities of the Finteum initiative. Other banks are assessing participation to become Key Participants following this latest trial, and the opportunity is open to all banks.
In 2022, the Finteum Platform added intraday repo alongside intraday FX swaps due to interest from banks, which was an important change. For intraday repo, the trial assumed DvP settlement using Euroclear Bank’s existing triparty infrastructure, which would enable settlement within minutes without any tokenisation. BNY Mellon’s triparty infrastructure can also be used to settle U.S. dollar intraday repo transactions executed on the Finteum Platform. The Finteum Platform is one of the first interbank venues to offer FX swaps and repo alongside each other in the same platform. Bank treasury teams use these two markets interchangeably for funding.
Using intraday markets, banks can borrow for hours at a time, enabling them to efficiently meet a temporary liquidity need. This helps them to safely optimise intraday liquidity buffers, which have been in focus since Basel III. In a poll of representatives across the 14 banks during the trial, 59% said that, given the rising interest rate environment, liquidity optimisation was a high priority for 2022/3, with a further 19% responding it was higher priority than 2021. For the Key Participant banks, the Finteum initiative is an important component of their liquidity optimisation strategy, predicting it will reduce each Key Participant bank’s costs by millions of dollars per year. Banks can also use intraday markets to lend excess funds, representing a new revenue stream.
FX swaps is among the largest markets in the world with more than $3.2 trillion of daily volume, according to the Bank for International Settlements. Repo volumes may be more than €3 trillion daily, according to the International Capital Market Association. However, for most market participants, overnight is still the shortest tenor in both markets. The Finteum Platform uses R3’s Corda enterprise blockchain, along with the best possible settlement solutions, to deliver its market-first intraday FX swaps execution service, and for intraday repo. The settlement rails could include DLT-based technology such as the Fnality Payment System and non-DLT technology such as Euroclear Bank’s triparty infrastructure.
During the trial, the banks engaged in simulated trading and discussion sessions, focused on the capabilities and features of the software, and its potential benefits. Over the course of one of the hour-long trading sessions the banks executed 96 simulated intraday FX swap and repo transactions, based on 75 simulated orders in a central limit order book and 165 bilateral RFQs, with a simulated total of $11.1bn traded.
Brian Nolan, Finteum co-founder, said: “Given the rising interest rate environment, intraday markets play an important role in banks’ liquidity optimisation strategy. We are excited to continue working with the Key Participant banks and including more banks in the group, ahead of go-live in 2023.”
Finteum raised angel funding and will close a seed funding round shortly to deliver on the go-live.