Eleven banking groups including NatWest Group, Deutsche Bank, Bank of Ireland and Banca Mediolanum have trialed a solution for intraday FX swaps.

The banks plan to support the initiative further with live transactions expected in 2021 or early 2022.

This is a diverse group of large and midsize players from Europe and North America, including clearing banks for five different home currencies; Canadian dollar, Euro, Pound sterling, Swiss franc and US dollar.

With a combined balance sheets of $14.5 trillion among the participating banks, this is said to be among the largest groups of banks ever to trial new market infrastructure.

Using intraday FX swaps, bank treasury teams can borrow for hours at a time, enabling them to efficiently meet a temporary liquidity need. This helps banks to optimise intraday liquidity buffers, which have been in focus since Basel III.

Banks can also use intraday FX swaps to lend excess funds, representing a new revenue stream. In a poll during the trial, the majority of banks estimated they could each save millions of dollars in costs every year.

The banks’ initiative to create an intraday FX swaps market is enabled by a platform built by Finteum, a London fintech company.

Finteum has been improving its intraday FX swaps platform since the solution was first announced with R3 and Fnality in September 2019, recently adding Request for Quote (RFQ) functionality.

The Finteum initiative will integrate with the best possible settlement solutions, which could include non-DLT technology such as CLSNow, and also DLT-based technology such as the Fnality Payment System.

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 simulated trading sessions, the banks executed 76 intraday FX swap transactions, based on 66 orders in a central limit order book and 69 bilateral RFQs.

Brian Nolan, Finteum Co-Founder said,

“We are excited for the next phase of development. The engagement and feedback from the banks during the trial was very encouraging. It reinforces the value the initiative can offer to banks across all geographies.

 

While every bank treasury team is focused on controlling costs, efficient optimisation of liquidity buffers is often overlooked by senior management. It is great to see the banks from the trial encouraging their peers to join the initiative and optimise the cost savings for all involved.”