Fintech in International Capital Markets
FinTech in International Capital Markets by Gabriel Callsen and Rowan Varrall
ICMA FinTech Advisory Committee ICMA’s FinTech Advisory Committee held further meetings on 1 December 2021, 27 January and 9 March 2022. On the agenda were green bond tokenisation, wholesale central bank digital currency (CBDC) and implications for capital markets, as well as ICMA’s strategic FinTech priorities for 2022. In December, the HKMA and BIS Innovation Hub Hong Kong jointly presented Project Genesis, which leveraged distributed ledger technology (DLT) to develop prototype digital platforms for green bonds. The aim was to enhance retail investors’ access to green government bonds, increase transparency and traceability by displaying accrued interest as well as CO2 reductions in real-time via an app. In addition, retail investors were able to access brokers’ and banks’ different order books through a single interface in the app. While the use of DLT generated efficiencies for bond issuance, the broader financial ecosystem and regulatory framework would require adjustments, for example, to support secondary market trading and settlement in near real-time. Participating vendor firms also explored the technical feasibility of tokenising HK$. Subject to regulatory development, the use of stablecoins for settlement may be possible in the future. In January, the Swiss National Bank (SNB) presented Project Helvetia Phase II: Settling Tokenised Assets in Wholesale CBDC, a joint project with the BIS Innovation Hub Swiss Centre and SIX, and Project Jura: Cross-border Settlement Using Wholesale CBDC, a collaboration with the BIS Innovation Hub Swiss Centre, Banque de France and a private sector consortium. Building on Phase I, the aim of Project Helvetia Phase II was to test the integration of overnight wholesale CBDC in core banking systems of both the SNB and commercial banks. By this, the settlement of interbank, cross-border and monetary policy transactions using wholesale CBDC could be tested end-to-end. Further to that, a legal assessment of solution design was conducted and alternative settlement options were analysed conceptually. Project Jura investigated the use of intraday wholesale CBDC accessible by eligible resident and non-resident banks in light of shortfalls in today’s cross-border settlement of FX and assets.
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Both projects found that domestic and cross-border deliveryversus-payment, payment-versus-payment and payment settlement in wholesale CBDC are functionally feasible. Atomic settlement using wholesale CBDC reduces settlement risk and is conducive to financial stability. However, the use of overnight compared to intraday wholesale CBDC has different implications. Access to wholesale CBDC, notably for non-resident financial institutions, raises intricate policy questions. Both projects were of experimental nature and do not indicate that the SNB intends to issue a wholesale CBDC. In January, members exchanged views on strategic priorities for 2022 which were subsequently confirmed at the March meeting. In line with the Committee’s mission statement, members agreed on the following priorities which will be driven by dedicated working groups: • Support electronification of repo markets and promote interoperability by extending the CDM to open repos, floating-rate repos, and evergreens in Phase 2 of the CDM, which is due to be launched in Q2. • Promote interoperability between the ever-growing vendor solutions and support automation in primary bond markets by developing a common data dictionary. • Explore market guidance to support liquidity in digital (DLT-based) bonds, with a focus on legal and operational aspects, and demystify digital bonds. In light of the continued growth of green, social and sustainability bond markets and future regulatory disclosure and reporting obligations, the Committee aims to identify ESG data requirements, foster standardisation and facilitate integration into pre-trade, trade execution and post-trade processes, in coordination with ICMA’s GBP stakeholders. Members are invited to reach out to us if they would like to become involved. Further information on the FinAC can be found on ICMA’s dedicated FinTech webpage. Contact: Gabriel Callsen gabriel.callsen@icmagroup.org
