NatWest, Citi, Barclays trial Finteum intraday FX swap and repo platform

NatWest, Citi and Barclays, alongside 11 other banking groups, have trialled a new platform from fintech Finteum that helps banks manage intraday liquidity.

Finteum demonstrates the benefits of its platform for banks’ intraday liquidity

The combined balance sheets of the participating banks was $19.8 trillion – among the largest group of banks ever to trial a new piece of market infrastructure, Finteum says.

Finteum co-founder Brian Nolan says: “Given the rising interest rate environment, intraday markets play an important role in banks’ liquidity optimisation strategy.”

The solution, tested by treasury and tech teams at the 14 banks, enables payment-vs-payment intraday FX swaps as well as delivery-vs-payment intraday repo transactions through the development of new interbank markets.

Finteum aims to create a global financial market for intraday FX swaps on distributed ledger technology (DLT). It claims most finance DLT applications are replicating existing transactions on-ledger to increase transparency and cut costs, but Finteum “uses the power of DLT to create a valuable market for intraday liquidity that was previously impossible”.

Using intraday markets, banks can 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.

Banks can also use intraday markets to lend excess funds, representing a new revenue stream.

In a poll across the 14 banks during the trial, 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.

The platform from London-based Finteum is expected to go live in 2023 with three large European banking groups, a subset of the 14 that participated in the trial, and real-money test trades are expected later in 2022.

Banks from Europe, North America and Asia were joined for the test by representatives from national prudential authorities and liquidity experts from industry body UK Finance.

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.

In 2022, the Finteum Platform added intraday repo alongside intraday FX swaps due to interest from banks. 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 – another participant in the trial – can also be used to settle US dollar intraday repo transactions executed on the Finteum Platform.

Finteum says it is one of the first interbank venues to offer FX swaps and repo alongside each other in the same platform. FX swaps and repo markets are among the largest markets in the world, Finteum notes, with each worth upwards of $3 trillion daily.