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 鈥渢he first鈥� uncleared bilateral margin payments using a digital representation of central bank funds on the Sterling Fnality Payment System (拢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 拢FnPS, the firms say.
Fnality鈥檚 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 拢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鈥檚 MarginBloc technology could provide further efficiencies and unlock new options for intraday margining processes in the future.
Following Adhara鈥檚 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: 鈥淎nother first for Fnality 鈥� 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鈥檚 balance sheet.鈥�
Peter Left, head of digital and markets innovation at Lloyds Banking Group, adds: 鈥淭his live first usage of 拢FnPS to settle margin for the purposes of exposure reduction on interbank derivative transactions shows great promise.
鈥淲e are excited to see new functions develop allowing greater automation of the margining workflow reducing counterparty exposures across the industry.鈥�
According to Hyder Jaffrey, head of principal investments and strategic ventures at UBS, the transactions are 鈥渁 significant first step鈥� in showing the acceptance of funds held directly in the FnPS as acceptable collateral for discharging uncleared margin payments and 鈥渁 great preview of what is to come鈥�.
For Fnality, this milestone 鈥渄emonstrates the first step in our exploration for a fully regulated DLT-based payment system being used to settle margin for cleared derivative transactions鈥�.
Angus Fletcher, CEO at Fnality UK, comments: 鈥淸It allows] us to further demonstrate positive progress. The benefits that our system brings are evident, and we鈥檙e glad to have worked with Banco Santander, Lloyds, UBS and Adhara to show the usability of our 拢FnPS. With this, we continue to build up to our vision for a network of FnPSs.鈥�
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 拢FnPS, the firms say.
Fnality鈥檚 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 拢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鈥檚 MarginBloc technology could provide further efficiencies and unlock new options for intraday margining processes in the future.
Following Adhara鈥檚 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: 鈥淎nother first for Fnality 鈥� 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鈥檚 balance sheet.鈥�
Peter Left, head of digital and markets innovation at Lloyds Banking Group, adds: 鈥淭his live first usage of 拢FnPS to settle margin for the purposes of exposure reduction on interbank derivative transactions shows great promise.
鈥淲e are excited to see new functions develop allowing greater automation of the margining workflow reducing counterparty exposures across the industry.鈥�
According to Hyder Jaffrey, head of principal investments and strategic ventures at UBS, the transactions are 鈥渁 significant first step鈥� in showing the acceptance of funds held directly in the FnPS as acceptable collateral for discharging uncleared margin payments and 鈥渁 great preview of what is to come鈥�.
For Fnality, this milestone 鈥渄emonstrates the first step in our exploration for a fully regulated DLT-based payment system being used to settle margin for cleared derivative transactions鈥�.
Angus Fletcher, CEO at Fnality UK, comments: 鈥淸It allows] us to further demonstrate positive progress. The benefits that our system brings are evident, and we鈥檙e glad to have worked with Banco Santander, Lloyds, UBS and Adhara to show the usability of our 拢FnPS. With this, we continue to build up to our vision for a network of FnPSs.鈥�
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