Weekly news up to 08/12/23
Issue #17
Hello everyone and welcome to the latest edition of GreySpark Insights.
Please do not hesitate to contact us with any questions or comments you may have. We are always happy to elaborate on the wider implications of these headlines from our unique capital markets consultative perspective. Happy reading!
💥Top story
HSBC trials quantum protection for AI-powered FX trading
📰Newsflash
📉Sellside
Citi invests in Icon Solutions
British payments technology company Icon Solutions has secured an equity investment from US banking giant Citi. The partnership is part of a multi-year payment platform modernisation from Citi as it seeks to respond to rapid technological advancement in payment infrastructure and stay on top of regulatory demands. The new platform will include key features such as end-to-end ISO native payments, and API-driven interfaces that enhance client access to data.
Marex files for US listing in blow to London stock market
UK commodities broker and clearer Marex has filed for a listing on the New York Stock Exchange, snubbing plans to list on the London Stock Exchange (LSE). The targeted value is expected to be between US$2.2 billion and US$2.8 billion, roughly four times its desired valuation when it attempted to list on the LSE in 2021. The move from Marex epitomises a difficult year for LSE, which has experienced several outages and lower trading volumes, while struggling to attract and maintain listings. The move could also suggest the increased appeal of US markets over UK markets at the moment with a more competitive landscape and better growth opportunities.
✴️Digital transformation
HSBC trials quantum protection for AI-powered FX trading
HSBC has piloted the use of quantum key encryption to protect client FX trading from increasingly sophisticated cyber attacks. During the trial, HSBC combined its AI markets trading terminal with quantum protection to safeguard a €30 million trading scenario using the Euro-to-US dollar pairing. Quantum keys use cryptographic protocols to encode messages, while utilising components of quantum mechanics called qubits. Qubits can produce infinitely more processing power than traditional binary ‘bits’ found in traditional computing systems, helping to deliver efficiencies in trading, data monitoring and security. HSBC is emerging as one of the front runners in terms of quantum computing application in the financial industry, having struck up deals with IBM and Terra Quantum this year.
Societe Generale-Backed Euro Stablecoin Starts Trading on Bitstamp
Societe Generale's (GLE) euro stablecoin EUR Coinvertible (EURCV) has started trading on European cryptocurrency exchange Bitstamp. The Ethereum-based stablecoin, designed as a means for institutional clients to bridge traditional capital markets and digital assets was unveiled in April 2023 by the bank’s crypto division. The listing on Bitstamp extends access to retail traders and marks the first occasion a euro stablecoin issued by a fully regulated bank has been made available on a cryptocurrency exchange.
📱Technology trends
Bank Of England, FCA Propose Rules To Regulate Bank’s Tech Reliance
The Financial Conduct Authority is set to publish proposals to strengthen the resilience of technology services provided by critical third-parties (CTPs) to UK-regulated financial services firms. CTPs supply a range of services to firms and FMIs, providing benefits, including greater operational resilience and innovation. However, if they are disrupted or fail, there are potential risks to UK financial stability. New proposals from UK regulators include laying out regular reporting and self-assessment requirements, and providing more granular and specialist operational resilience requirements that apply only to CTPs, including technology and cyber resilience requirements.
RobinHood launches crypto app across Europe
Brokerage RobinHood has launched a crypto-trading application in the European Union. The platform will allow users to transact in 25 different cryptocurrencies and is also the first crypto platform that allows users to get a percentage of their trading volume back every month, while also offering zero fees. Robinhood’s entry into the crypto market comes a week after the firm launched its stock trading application in the United Kingdom.
🧑⚖️Regulatory developments
BofE to review AI risk to financial stability
The Bank of England (BoE) is launching a review of artificial intelligence and machine learning amid concerns that its use could pose financial stability risks. A report by the BoE noted how ‘wider adoption of the technologies "could conceivably also pose system-wide financial stability risks, for example by amplifying herding or broader procyclical behaviours or increasing cyber-risk and interconnectedness.’ As a result, the BoE has stated that it is going to give close consideration to the risks of AI and machine learning in 2024, and ensure the industry is resilient to these risks.
US bitcoin ETF issuer talks with SEC have advanced to key details
Discussions between the U.S. securities regulator and asset managers hoping to list bitcoin exchange-traded funds (ETFs) have advanced to key technical details, according to sources. Thirteen firms including BlackRock and GrayScale investments have pending applications with the Securities and Exchange Commission (SEC) for spot ETFs that track the price of Bitcoin. The arrival of an industry-first spot Bitcoin ETF is looking increasingly likely, paving the way for greater institutional adoption.
📊Chart of the week
Home to the world’s deepest capital markets, the US makes up 42.5% of the global equity market capitalisation. The next closest economy is the European Union with 11.1%.
However, what’s interesting is the future trajectory of the capital market landscape, which the figure below shows.
By 20230, the market share of the developed markets is set to decline, while the market shares of emerging economies in the APAC region, such as China and India, are set to increase.
In particular, one key reason for the increased future market share of the Chinese equity market is the growing accessibility and democratisation of Chinese securities, made possible by the Stock Connect programme that links capital markets in Hong Kong and mainland China. Through the investment channel offered by Stock Connect in Hong Kong, outside or overseas investors can tap into the Chinese market and provide greater capital inflows. Changing demographics, greater affluence and high growth potential are also contributing factors to APAC economies grabbing a larger future capital market share.
🐤Tweet of the week
📄GreySpark insight
In cryptoassets clearing and settlement, interfaces for managing the process and workflow must be different from traditional fiat currency-based systems because the process and workflow required is specific to the decentralised network of nodes that govern the blockchain on which the cryptoasset operates. Generally, the main difference is that the steps are truncated:
Initiation & Verification – The sender uses a software wallet or a hardware wallet to initiate the transaction. The wallet generates a transaction request that includes the recipient's public address, the amount of the cryptoasset to be transferred, and a unique digital signature;
Transmission & Settlement (Broadcast to the Network) – The transaction request is broadcast to the decentralised network of nodes that maintain the blockchain ledger. The nodes validate the transaction request, and if it meets the necessary criteria, then the transaction is added to a new block on the blockchain; and
Reconciliation – Which occurs over three stages:
Validation & Verification – Once the transaction is added to the blockchain, the nodes on the network validate and verify the transaction through a process called mining. Miners use their computing power to solve complex mathematical equations, which help to confirm the transaction and add it to the blockchain;
Confirmation & Finalisation – The transaction is confirmed and finalised when it is added to multiple blocks on the blockchain. This process can take several minutes or longer depending on the specific blockchain and the level of activity on the network; and
Recording on the Ledger – The transaction is recorded on the blockchain ledger and is visible to anyone who has access to the blockchain. The sender and recipient can view the transaction on the blockchain and track its progress from initiation to finalisation.
Discover more here.