• New trade type promises to create super-short-term interbank markets, dramatically reducing banks’ High Quality Liquid Assets (HQLA) requirements for intraday liquidity and boost their dynamic access to funding
• Trade negotiated on the Finteum Platform, which uses R3’s Corda, and executed on the TP ICAP UK MTF, with Finteum also acting as the arranger
• Innovative trade flow solution enables transactions that have been arranged off-venue to be executed and registered on an MTF

UBS and CIBC have settled the world’s first intraday FX swap to be executed on a regulated venue. The EUR/USD intraday FX swap, negotiated using the Finteum Platform and executed on the TP ICAP UK MTF, was completed within minutes. Both legs of the swap were settled by the banks at pre-agreed times, within the same business day on T+0.

With further banks preparing to execute similar transactions this year, this new approach promises to deliver a very significant saving for major banks. Given there are few solutions to control the receipt of funds within a settlement window, bank treasury teams maintain large buffers of High Quality Liquid Assets (HQLA) for intraday. Holding this HQLA is particularly expensive, partly due to interest rates falling more slowly than previously expected and it is estimated to cost up to $75m per year for a large bank.

The distributed ledger technology (DLT)-enabled Finteum Platform specialises in trades that last hours instead of days, avoiding unnecessarily long trades, thereby enabling banks to meet customer obligations more quickly, reduce their HQLA requirements and meet increasing regulatory expectations to fund payment activity in real-time.

Rupert Hume-Kendall, former Chair of Bank of America Merrill Lynch International, who recently joined as Finteum Vice-Chair and as a board member, said: “Recent regulatory focus has highlighted the need for banks to have access to multiple tools and sources of liquidity. Intraday FX swaps and intraday repo are recognised to be an increasingly important part of liquidity management strategies at global banks and we’re excited to be working with many of the world’s largest banks to bring this new technology to fruition and reduce their costs.”

Finteum recently became FCA registered as an appointed representative, enabling the Finteum Platform to be used for arranging interbank transactions. The innovative trade flow solution utilised by Finteum and TP ICAP enables transactions to be arranged off-venue and subsequently executed and registered on an MTF.

Adam Roberts, Head of Post Trade Solutions, EMEA, TP ICAP, said: “This groundbreaking achievement enables partner banks to realise significant capital efficiencies and demonstrates our commitment to partnering with exciting new fintechs to drive financial market innovation. TP ICAP is committed to working with exciting start-ups like Finteum to bring new and innovative trading solutions to our customers.”

A Finteum Platform trial in April for USD intraday repo with 14 global bank participants, with simulated settlement, demonstrated the potential of the intraday repo market. Live Finteum Platform repo trades are expected later in 2024.

The Finteum Platform uses R3’s Corda, an open, permissioned, distributed platform for regulated markets. DLT enables both parties to a trade to send money and securities to each other, without needing to exchange and reconcile MT300 or similar confirmation messages. Post-trade actions such as ‘early maturity’ or cancellation of a trade are also agreed through the Finteum Platform.

Kate Karimson, Chief Commercial Officer at R3, said, “R3’s Corda is designed for regulated markets, facilitating interoperability and integration. We are pleased to be supporting another innovation in market structure with the launch of Finteum’s intraday FX swaps and intraday repo solution, which will maximise the efficiency of this exciting new market.”

The banks using Finteum are settling the trades using existing Real Time Gross Settlement (RTGS) systems for intraday FX swaps. Finteum is built to be able to integrate with any market infrastructure, including RTGS systems, T2S, as well as DLT-native technology such as the Fnality Payment System, HQLAX, Partior and OSTTRA’s PvP Settlement Orchestration solution. Member banks plan to transition FX swap settlement from RTGS systems to “Payment vs Payment” solutions, when appropriate.

Anthony Clark-Jones, who leads the Strategic Ventures portfolio at UBS Investment Bank, added, “this world-first trade over Finteum is another step towards institutions and their partners realising the commercial, risk-associated and client-related benefits of truly digital capital markets, and compliments recent progress elsewhere with, for example, institutional digital cash and digital collateral.”

Finteum is building out the second wave of banks that will go live on the platform in 2024 and will start benefiting from intraday markets. Incentive structures are in place for second wave banks.

Source: Finteum