Global banks trial interbank platform for intraday repo and FX swaps
21 June 2022
Finteum鈥檚 co-founder Brian Nolan speaks to Bob Currie about the development of the London fintech鈥檚 DLT-based platform and countdown to its proposed launch in mid-2023
Image: Brian Nolan
Fourteen large banking groups have completed a trial to execute intraday repo and intraday FX swaps through an interbank platform built by Finteum and a number of these banks have indicated that they plan to go live on the service when this is released in 2023.
The trial involved treasury and technology teams from global banks including BNY Mellon鈥檚 corporate treasury function, Barclays, Citi and NatWest Group and involved simulated trading sessions to test the capabilities of the platform.
Finteum was established in London in 2018 by co-founders, Brian Nolan and Zbi Czapran. Nolan had previously worked in liquid asset portfolio management roles at the Bank of Ireland in Dublin and at director level in liquidity governance positions at UBS in Zurich and New York. Finteum鈥檚 chief technology officer Czapran specialises in software development, data science and financial technology and has held project lead and senior developer roles in a range of financial and non-financial enterprises in the UK and Poland.
The firm established a relationship at an early stage with distributed ledger technology (DLT) specialist R3 and is building on the R3 Corda blockchain.
Finteum indicates that it is one of the first interbank venues to support intraday FX swaps and intraday repos alongside each other in the same platform, enabling treasury teams to use these two markets interchangeably to manage their financing requirements.
As an interbank platform, participating firms can trade with other participants on the Finteum platform as either a price maker or a price taker, explains Nolan. The platform aims to use existing settlement infrastructure, with the trial assuming DvP settlement using Euroclear Bank鈥檚 triparty infrastructure. BNY Mellon鈥檚 triparty infrastructure can also be used to settle US dollar intraday repo transactions executed on the Finteum platform. Finteum is also trialling settlement with digital settlement rails such as the Fnality Payment System and the company is open to extending these DvP options according to demand from participating firms.
In doing so, the Finteum solution does not use tokenised securities or tokenised cash to settle FX swap or repo transactions 鈥� a point of contrast with J.P. Morgan鈥檚 intraday repo solution launched in 2021, for example, where participants on the Onyx Digital Assets blockchain can finance securities through a tokenised transaction with settlement against JPM Coin, a tokenised currency referencing USD held in client accounts at J.P. Morgan bank .
A priority in building the Finteum platform has been to shorten the timeframe and to reduce the risks and errors that occur between the trading decision and transaction settlement, ensuring that this operates via STP workflow and enabling stakeholders to the trade to work from pre-trade onwards using a shared data record maintained on blockchain. "By reducing this timeframe, this provides an increasingly viable way for banks to reduce the balance sheet costs of managing intraday liquidity," says Nolan.
Participants in the trial indicate that the Finteum initiative is an important element in their liquidity optimisation strategy, enabling banks to borrow for hours at a time through the intraday liquidity market that this offers. This helps them to optimise management of their intraday liquidity buffers and to substantially reduce their regulatory capital costs, while also being able to lend excess liquidity using the intraday repo market or FX swap market.
During the trial, participating banks executed 96 simulated intraday repo and FX swap transactions based on 75 simulated orders in a central limit order book and 165 bilateral request for quotes (RFQs). Nolan indicates that Finteum has consulted with national prudential authorities from the early days of the project 鈥� and representatives from these financial regulators, along with liquidity experts from UK Finance, a representative body for the banking and finance industry, were involved in the trial simulations and subsequent discussions.
The project team will continue its testing programme with further simulations involving real money trades during H2 2022.
To encourage timely intraday settlement, the Finteum rulebook specifies that offending parties will be subject to a settlement penalty if the first leg of a repo transaction does not settle within 45 minutes. 鈥淭he banks came up with this proposal to ensure that trade executes and settles quickly 鈥� and that is an important feature of our rulebook,鈥� says Nolan.
Funding to date has been extended by angel investors, including Andrii Nesteruk who is now Finteum鈥檚 head of strategy, with at least two investors understood by SFT to have committed a six-figure GBP investment. The company has launched another funding round prior to the platform鈥檚 proposed release next year.
Other senior figures have provided valuable advice and consultancy, including former EBS CEO Jack Jeffrey and post-trade specialist and UBS and Morgan Stanley alumni Chris Murphy, who is now chief executive of digital capital markets fintech Ediphy.
Three large Europe-based banks have indicated their intention to go live with the Finteum platform in Q2 or Q3 2023 when this is released by the London-based company. Business development director Daniel Godsell explains that, having started the project build during 2018, Finteum has been demonstrating the solution to an expanding cohort of prospect clients, with consultation now ongoing with around 50 banking groups as the company works to build the trading community active on the platform at its launch.
Commenting on the advance of the project, Finteum co-founder Brian Nolan says: 鈥淕iven the rising interest rate environment, intraday markets play an important role in banks鈥� liquidity optimisation strategy. We are excited to continue working with the key participant banks and to include more banks in the group ahead.鈥�
The trial involved treasury and technology teams from global banks including BNY Mellon鈥檚 corporate treasury function, Barclays, Citi and NatWest Group and involved simulated trading sessions to test the capabilities of the platform.
Finteum was established in London in 2018 by co-founders, Brian Nolan and Zbi Czapran. Nolan had previously worked in liquid asset portfolio management roles at the Bank of Ireland in Dublin and at director level in liquidity governance positions at UBS in Zurich and New York. Finteum鈥檚 chief technology officer Czapran specialises in software development, data science and financial technology and has held project lead and senior developer roles in a range of financial and non-financial enterprises in the UK and Poland.
The firm established a relationship at an early stage with distributed ledger technology (DLT) specialist R3 and is building on the R3 Corda blockchain.
Finteum indicates that it is one of the first interbank venues to support intraday FX swaps and intraday repos alongside each other in the same platform, enabling treasury teams to use these two markets interchangeably to manage their financing requirements.
As an interbank platform, participating firms can trade with other participants on the Finteum platform as either a price maker or a price taker, explains Nolan. The platform aims to use existing settlement infrastructure, with the trial assuming DvP settlement using Euroclear Bank鈥檚 triparty infrastructure. BNY Mellon鈥檚 triparty infrastructure can also be used to settle US dollar intraday repo transactions executed on the Finteum platform. Finteum is also trialling settlement with digital settlement rails such as the Fnality Payment System and the company is open to extending these DvP options according to demand from participating firms.
In doing so, the Finteum solution does not use tokenised securities or tokenised cash to settle FX swap or repo transactions 鈥� a point of contrast with J.P. Morgan鈥檚 intraday repo solution launched in 2021, for example, where participants on the Onyx Digital Assets blockchain can finance securities through a tokenised transaction with settlement against JPM Coin, a tokenised currency referencing USD held in client accounts at J.P. Morgan bank .
A priority in building the Finteum platform has been to shorten the timeframe and to reduce the risks and errors that occur between the trading decision and transaction settlement, ensuring that this operates via STP workflow and enabling stakeholders to the trade to work from pre-trade onwards using a shared data record maintained on blockchain. "By reducing this timeframe, this provides an increasingly viable way for banks to reduce the balance sheet costs of managing intraday liquidity," says Nolan.
Participants in the trial indicate that the Finteum initiative is an important element in their liquidity optimisation strategy, enabling banks to borrow for hours at a time through the intraday liquidity market that this offers. This helps them to optimise management of their intraday liquidity buffers and to substantially reduce their regulatory capital costs, while also being able to lend excess liquidity using the intraday repo market or FX swap market.
During the trial, participating banks executed 96 simulated intraday repo and FX swap transactions based on 75 simulated orders in a central limit order book and 165 bilateral request for quotes (RFQs). Nolan indicates that Finteum has consulted with national prudential authorities from the early days of the project 鈥� and representatives from these financial regulators, along with liquidity experts from UK Finance, a representative body for the banking and finance industry, were involved in the trial simulations and subsequent discussions.
The project team will continue its testing programme with further simulations involving real money trades during H2 2022.
To encourage timely intraday settlement, the Finteum rulebook specifies that offending parties will be subject to a settlement penalty if the first leg of a repo transaction does not settle within 45 minutes. 鈥淭he banks came up with this proposal to ensure that trade executes and settles quickly 鈥� and that is an important feature of our rulebook,鈥� says Nolan.
Funding to date has been extended by angel investors, including Andrii Nesteruk who is now Finteum鈥檚 head of strategy, with at least two investors understood by SFT to have committed a six-figure GBP investment. The company has launched another funding round prior to the platform鈥檚 proposed release next year.
Other senior figures have provided valuable advice and consultancy, including former EBS CEO Jack Jeffrey and post-trade specialist and UBS and Morgan Stanley alumni Chris Murphy, who is now chief executive of digital capital markets fintech Ediphy.
Three large Europe-based banks have indicated their intention to go live with the Finteum platform in Q2 or Q3 2023 when this is released by the London-based company. Business development director Daniel Godsell explains that, having started the project build during 2018, Finteum has been demonstrating the solution to an expanding cohort of prospect clients, with consultation now ongoing with around 50 banking groups as the company works to build the trading community active on the platform at its launch.
Commenting on the advance of the project, Finteum co-founder Brian Nolan says: 鈥淕iven the rising interest rate environment, intraday markets play an important role in banks鈥� liquidity optimisation strategy. We are excited to continue working with the key participant banks and to include more banks in the group ahead.鈥�
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