Several global banks have progressed with the Finteum Platform integration work, ahead of going live with the system.
The Finteum Platform is an execution venue that brings intraday funding capabilities to the global interbank market. 19 banking groups with a combined balance sheet of $23.5trn attended a joint trial of the software in Q2 2023, together with observers from national prudential authorities. The Finteum Platform is expected to complete its first live trades by the end of 2023.
In the recent trial, over three days, participants discussed the business case and market structure for intraday markets. Attendees were a diverse group of large and midsize global organisations and included clearing banks for six different home currencies CAD, CHF, EUR, GBP, JPY and USD.
The banks progressing with the integration work and planning to go live soon include UBS and NatWest. Intraday FX swaps and intraday repo are recognised to be an increasingly important part of liquidity management strategies at global banks. The Federal Reserve included intraday liquidity risk management as a supervisory priority for 2023, and recent bank failures have highlighted the need for banks to have access to multiple tools and sources of liquidity.
As 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 increasingly expensive, due to the rising interest rate environment.
Banks require agile mechanisms that enable them to swiftly access and move funds when needed. Finteum trial participants responded to a poll on the tools they would like to possess to manage intraday liquidity; 94% selected intraday and overnight funding markets, such as the Finteum Platform. The second most popular tool was central banks (facilities, FX swap lines, and liquidity bridges) at 75%. Accessing commercial bank credit lines, and throttling and payment queue reordering, were less popular at 30% or less.
By gaining faster and better access to a currency, and by holding it for only as long as is needed, banks can meet customer obligations, reduce the HQLA required and meet increasing regulatory expectations to be able to fund payment activity in real-time. This subsequently reduces bank costs, with estimates of up $75m per year for a large bank. In another trial poll, 64% of respondents believed they had adequate real-time data on their payment patterns to execute intraday trades, with others indicating they could use historical patterns instead to model regular, useful, intraday transactions.
The Finteum Platform uses R3’s Corda Enterprise distributed ledger technology (DLT) protocol. 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 DLT platform. All data records are stored on a shared ledger that is only visible to the parties to the trade - not to Finteum, R3 or anyone else.
Trades during the interbank trial were agreed in a simulated settlement environment. Real money trades are scheduled for later in 2023. The banks integrating with Finteum are going live using existing Real Time Gross Settlement (RTGS) systems for intraday FX swaps. Following requests from banks, newly built “capacity” functionality helps bank teams to coordinate with each other regarding how much of each currency the bank should borrow or lend, and for which hours. Also, bank risk teams can now input intraday credit limits into the platform, to manage intraday counterparty credit risk.
Finteum is built to be able to integrate with any market infrastructure, including BNY Mellon’s triparty repo platform, Euroclear Bank’s triparty repo platform, RTGS systems, T2S, as well as DLT-native technology such as the Fnality Payment System, HQLAX, Baton Systems' Core-FX and RTGS.global. Member banks plan to transition FX swap settlement from RTGS systems to "Payment vs Payment" solutions, when appropriate.
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.