Banks complete uncleared bilateral margin payments on Fnality
29 October 2024 UK
Image: Dao/stock.adobe.com
Banco Santander, Lloyds Banking Group, and UBS have completed “the first” uncleared bilateral margin payments using a digital representation of central bank funds on the Sterling Fnality Payment System (£FnPS).
It marks the first instance of a fully regulated distributed ledger technology (DLT) based payment system being used to settle margin for the purposes of real-world interbank derivative exposures.
This real-world proof-of-concept proves that Fnality can be used to make bilateral margin payments using £FnPS, the firms say.
Fnality’s vision is to develop a regulated financial market infrastructure that addresses a variety of pain points across the financial market.
These settled margin transfers are a first step in exploring the potential use of £FnPS for cleared margin payments in the future, the firm adds.
Fnality expects this use case to ultimately enable significant balance sheet benefits for banks.
Adhara, a software company that provides real-time, multi-currency, liquidity management and international payment solutions, also simulated this transaction flow in a testing environment to explore how the firm’s MarginBloc technology could provide further efficiencies and unlock new options for intraday margining processes in the future.
Following Adhara’s parallel simulation, participants will also have the opportunity to engage with its MarginBloc solution.
MarginBloc is designed to unlock new options for intraday margining processes and the potential benefits of digital assets as a clearing product, by streamlining and reimagining the cash settlement process for cleared and uncleared initial and variation margin transactions.
Commenting on the achievement, John Whelan, managing director of digital assets at Banco Santander, says: “Another first for Fnality — this time in establishing the key proof point that the system can be used functionally for margin payments, a key component of the future of automation of a bank’s balance sheet.”
Peter Left, head of digital and markets innovation at Lloyds Banking Group, adds: “This live first usage of £FnPS to settle margin for the purposes of exposure reduction on interbank derivative transactions shows great promise.
“We are excited to see new functions develop allowing greater automation of the margining workflow reducing counterparty exposures across the industry.”
According to Hyder Jaffrey, head of principal investments and strategic ventures at UBS, the transactions are “a significant first step” in showing the acceptance of funds held directly in the FnPS as acceptable collateral for discharging uncleared margin payments and “a great preview of what is to come”.
For Fnality, this milestone “demonstrates the first step in our exploration for a fully regulated DLT-based payment system being used to settle margin for cleared derivative transactions”.
Angus Fletcher, CEO at Fnality UK, comments: “[It allows] us to further demonstrate positive progress. The benefits that our system brings are evident, and we’re glad to have worked with Banco Santander, Lloyds, UBS and Adhara to show the usability of our £FnPS. With this, we continue to build up to our vision for a network of FnPSs.”
It marks the first instance of a fully regulated distributed ledger technology (DLT) based payment system being used to settle margin for the purposes of real-world interbank derivative exposures.
This real-world proof-of-concept proves that Fnality can be used to make bilateral margin payments using £FnPS, the firms say.
Fnality’s vision is to develop a regulated financial market infrastructure that addresses a variety of pain points across the financial market.
These settled margin transfers are a first step in exploring the potential use of £FnPS for cleared margin payments in the future, the firm adds.
Fnality expects this use case to ultimately enable significant balance sheet benefits for banks.
Adhara, a software company that provides real-time, multi-currency, liquidity management and international payment solutions, also simulated this transaction flow in a testing environment to explore how the firm’s MarginBloc technology could provide further efficiencies and unlock new options for intraday margining processes in the future.
Following Adhara’s parallel simulation, participants will also have the opportunity to engage with its MarginBloc solution.
MarginBloc is designed to unlock new options for intraday margining processes and the potential benefits of digital assets as a clearing product, by streamlining and reimagining the cash settlement process for cleared and uncleared initial and variation margin transactions.
Commenting on the achievement, John Whelan, managing director of digital assets at Banco Santander, says: “Another first for Fnality — this time in establishing the key proof point that the system can be used functionally for margin payments, a key component of the future of automation of a bank’s balance sheet.”
Peter Left, head of digital and markets innovation at Lloyds Banking Group, adds: “This live first usage of £FnPS to settle margin for the purposes of exposure reduction on interbank derivative transactions shows great promise.
“We are excited to see new functions develop allowing greater automation of the margining workflow reducing counterparty exposures across the industry.”
According to Hyder Jaffrey, head of principal investments and strategic ventures at UBS, the transactions are “a significant first step” in showing the acceptance of funds held directly in the FnPS as acceptable collateral for discharging uncleared margin payments and “a great preview of what is to come”.
For Fnality, this milestone “demonstrates the first step in our exploration for a fully regulated DLT-based payment system being used to settle margin for cleared derivative transactions”.
Angus Fletcher, CEO at Fnality UK, comments: “[It allows] us to further demonstrate positive progress. The benefits that our system brings are evident, and we’re glad to have worked with Banco Santander, Lloyds, UBS and Adhara to show the usability of our £FnPS. With this, we continue to build up to our vision for a network of FnPSs.”
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