Using the Finteum DLT platform, UBS and CIBC negotiated a USD-EUR intraday FX swap, which was executed on the TP ICAP UK multilateral trading facility (MTF).
FX Swap transactions usually last days, but in Finteum’s case, they are for hours. The key benefit is the ability to specify a tight settlement window. This should reduce the need for banks to hold such significant amounts of High Quality Liquid Assets (HQLA) buffers to meet intraday demands.
A 2018 Oliver Wyman report estimated that if banks reduce intraday liquidity requirements by a quarter, they could save $25-$75 million per year. Since then interest rates have surged.
“Recent regulatory focus has highlighted the need for banks to have access to multiple tools and sources of liquidity,” said Rupert Hume-Kendall, Finteum’s Vice Chair.
“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.”
The startup expects other banks to conduct similar transactions this year, and will additionally launch live intraday repo trading later in the year. It simulated repo trades with 14 banks in April. Previously, Finteum has conducted several multi-bank trials.
“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,” said Adam Roberts, Head of Post Trade Solutions, EMEA, TP ICAP.
Intraday settlement
Currently, the transactions are settled via the real time gross settlement (RTGS) systems. However, Finteum is ready to integrate with other DLT systems. These potentially include Fnality, HQLAᵡ, Partior and OSTTRA’s PvP Settlement Orchestration solution, which uses Baton System’s Core FX.
Finteum developed its platform using R3’s Corda enterprise blockchain.
Meanwhile, the intraday repo segment is proving fertile ground for DLT. Broadridge and JP Morgan both have DLT systems and Fnality and HQLAᵡ are planning to launch one. Broadridge’s solution transacts more than $1 trillion a month. This reinforces the appetite for intraday transactions.
