Treasury and technology teams from various established banking groups have engaged in a trial of London-based fintech Finteum‘s new platform that aims to help banks manage intraday liquidity through the development of new interbank markets.
Using intraday markets, banks are able to 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.
The platform, which has been trialled by teams from NatWest Group, BNY Mellon’s corporate treasury function, Barclays, Citi and 10 additional banks, enables payment-vs-payment intraday FX swaps as well as delivery-vs-payment intraday repo transactions.
The trail’s engaging parties included Europe, North America and Asia-headquartered banks with a combined balance sheet of $19.8trillion, who were joined by representatives from national prudential authorities and liquidity experts from UK Finance.
Three of those who participated in the trial have since committed to going live on the Finteum platform in Q2-Q3 2023, with real-money test trades expected later in 2022.
In 2022, the Finteum platform added intraday repurchase agreement (repo) alongside intraday FX swaps due to interest from banks, which was an important change.
For intraday repo, the trial assumed delivery versus payment (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 US dollar intraday repo transactions executed on the Finteum platform. The platform is one of the first interbank venues to offer FX swaps and repo alongside each other on the same platform. Bank treasury teams use these two markets interchangeably for funding.
In a poll of representatives across the 14 banks during the trial, 59 per cent said that, given the rising interest rate environment, liquidity optimisation was a high priority for 2022/3, with a further 19 per cent responding it was a higher priority than 2021. Banks can also use intraday markets to lend excess funds, representing a new revenue potential.
FX swaps are among the largest markets in the world with more than $3.2trillion of daily volume, according to the Bank for International Settlements. Repo volumes may be more than $3trillion 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 the Corda enterprise blockchain to deliver its 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 $11.1billion 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’re 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.