Banks Commit to Finteum FX Swaps Platform

Treasury and technology teams from 14 banking groups, including NatWest, BNY Mellon’s corporate treasury function, Barclays, Citi have trialled a platform by London-based fintech Finteum which seeks to help banks to manage intraday liquidity through the development of new interbank markets.

During the trial, for which Finteum raised angel funding and says it will close a seed funding round shortly to deliver on the go-live, 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 $11.1 billion traded.

The platform will go live in 2023 and will enable payment-vs-payment (PvP) intraday FX swaps as well as delivery-vs-payment (DvP) intraday repo transactions. For the trial, the banks were joined by representatives from national prudential authorities and liquidity experts from UK Finance, the collective voice for the banking and finance industry, who observed. The combined balance sheets of the participating banks was $19.8 trillion, Finteum says, adding it is among the largest group of banks ever to trial a new piece of market infrastructure.

Three un-named European banking groups, a subset of the 14 that participated in the trial, have already committed to go live on the Finteum platform in the middle of 2023, with real-money test trades expected later in 2022. These so-called ‘key participant’ banks also help to influence the development priorities of the Finteum initiative, the firm explains, adding other banks are assessing participation to become key participants following this latest trial, and the opportunity is open to all banks.

This year, the Finteum platform has added intraday repo alongside intraday FX swaps due to interest from banks, which was an important change, according to the firm. For intraday repo, the trial assumed 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, making it, the firm says, one of the first interbank venues to offer FX swaps and repo alongside each other in the same platform.

Under the initiative, and using intraday markets, banks will be 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, Finteum says.

In a poll of representatives across the 14 banks during the trial, Finteum says that 59% said that, given the rising interest rate environment, liquidity optimisation was a high priority for 2022/3, with a further 19% responding it was higher priority than 2021. For the key participant banks, Finteum predicts the solution will reduce each bank’s costs by millions of dollars per year. Banks can also use intraday markets to lend excess funds, representing a new revenue stream, it adds.

The platform will use R3’s Corda enterprise blockchain, along with settlement solutions, to deliver its intraday FX swaps execution service, and for intraday repo. Finteum says 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.

“Given the rising interest rate environment, intraday markets play an important role in banks’ liquidity optimisation strategy,” says Brian Nolan, Finteum co-founder. “We are excited to continue working with the Key Participant banks and including more banks in the group, ahead of go-live in 2023.”