Weekly news up to 31/05/2024
Issue #36
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
Minor system issue hits DTCC’s night cycle processing on first day of T+1; affirmation rates top 90%
📰Newsflash
📈Buyside
Asset managers still grappling with communications as anti-greenwashing deadline looms
Asset managers have flagged a number of concerns around the anti-greenwashing rule that is coming into force in the UK as of 31 May 2024. Under the terms of the Financial Conduct Authority’s sustainable disclosure requirements (SDR), firms must ensure they are making fair, clear and non-misleading statements with regard to their environmental, social and governance practices. Specifically, there is uncertainty around how to apply the new requirements to all communications and practices, when there is no single definition of ‘sustainability’. With communications covering a wide range of areas, including statements, strategies, targets, policies, annual reports, marketing and images, some firms may not have processes in place for examining such a wide range of mediums and ensuring ongoing compliance, which could require oversight across several different parts of the business. This could lead to significant operational changes in order to meet compliance.
Minor system issue hits DTCC’s night cycle processing on first day of T+1; affirmation rates top 90%
The Depository Trust and Clearing Corporation (DTCC) experienced system issues within its night cycle processing on the first day of T+1 security trading in the US. The issue was described by sources as having minor impact, and is in line with ‘expected teething issues’ anticipated by US market infrastructure. The processing delays were resolved and a number of custodians, transactions were still processed in accordance with the DTCC deadlines for settlement. Night processing starts on the evening of trade date at 11:30 PM Eastern Time and runs for two hours.
📉Sellside
HSBC leads Series A round in MarketNode
HSBC has led a Series A investment round in MarketNode, a Singapore-based digital market infrastructure operator founded by SGX and Temasek. The investment, which also included contributions from existing shareholder Temasek, will be used to scale Marketnode’s platforms across key asset classes such as digital fixed income, structured products and tokenised securities. Since 2020, MarketNode and HSBC have jointly participated in the Monetary Authority of Singapore’s Project Guardian initiative and several digital bond initiatives.
JP Morgan to pay $100m for client order monitoring failures
JP Morgan will pay $100 million to settle a Commodity Futures Trading Commission probe, which concluded that the bank failed to adequately monitor billions of client orders between 2014 and 2021. According to the order, in 2021, while onboarding a new trading exchange, JP Morgan discovered its surveillance of trading on multiple venues and trading systems was not operating correctly. The problem arose because of a failure to configure certain data feeds to ensure complete trade and order data were being ingested by the bank. JP Morgan has ensured that significant remedial actions have been taken to address the issue.
✴️Digital transformation
Commonwealth Bank of Australia to pilot NameCheck solution on JP Morgan’s Liink network
Commonwealth Bank of Australia (CBA) is set to pilot its NameCheck technology solution on Liink, a network developed by JP Morgan’s blockchain-focused business unit Onyx. CBA’s NameCheck solution uses the bank’s payment data to verify the accuracy of account details when making payments. By enabling the use of its NameCheck technology on Liink by JP Morgan, the CBA says it will become the first Australian bank to help validate bank account details used in international payments to Australia, leveraging the settlement and security benefits of blockchain technology.
Commerzbank streamlines cross-asset trading with migration to Murex platform
Commerzbank has moved to simplify and streamline its cross-asset trading with a migration onto Murex’s MX.3 platform. The bank has migrated its foreign exchange, commodities, derivatives, and equities onto the platform in a bid to simplify risk and trading. The migration will help Commerzbank achieve business “expansion, consolidation, modernisation, and digitalisation” by improving speed to market and optimising efficiencies.
📱Technology trends
DTCC, Clearstream and Euroclear develop framework to advance adoption of digital assets
Three of the world’s largest financial market infrastructures (FMIs) – DTCC, Clearstream and Euroclear – in collaboration with Boston Consulting Group (BCG), unveiled a blueprint for establishing an industry-wide digital asset ecosystem to drive acceptance of tokenised assets. By 2030, the tokenisation of illiquid assets is projected to become a US$16 trillion business opportunity. However, progress on institutional adoption has reached an inflection point as firms continue innovating in silos, with small-scale initiatives that fail to progress or prioritise broader ecosystem development. The framework seeks to shift the industry’s focus by defining six principles to promote the successful adoption of tokenisation and digital asset securities (excluding cryptocurrencies). The report can be found here.
The New York Stock Exchange, part of Intercontinental Exchange, Inc - a leading global provider of technology and data - has announced it is collaborating with CoinDesk Indices to launch cash-settled index options tracking the CoinDesk Bitcoin Price Index (XBX). XBX is the longest-operating spot bitcoin index in the market. XBX tracks the spot price of bitcoin, denominated in U.S. dollars, in real time across multiple crypto exchanges and is calculated and published once per second, 24 hours per day, 365 days a year. Upon regulatory approval, these options contracts will offer institutional investors access to an important liquid and transparent risk-management tools.
🧑⚖️Regulatory developments
SEC Commissioner Proposes Joint US-UK Digital Securities Sandbox
The US Securities and Exchange Commission (SEC) has proposed a joint US-UK digital securities sandbox to generate real-world insights about whether distributed ledger technology (DLT) can streamline the issuance, trading, and settlement of securities without undermining investor protection, market integrity, or financial stability. The proposed cross-border sandbox seeks to enable firms to conduct identical sandbox activities under the same regulatory requirements in both the UK and the U.S, adhering to monetary and customer ceilings and anti-fraud provisions.
Package of new anti-money laundering rules adopted by European Council
This week, the Council of the European Union adopted a package of new anti-money-laundering rules that will protect EU citizens and the EU's financial system against money laundering and the financing of terrorism. The regulation exhaustively harmonises anti-money laundering rules for the first time throughout the EU, closing loopholes for fraudsters, while also extending the anti-money laundering rules to new obliged entities, such as the cryptoasset sector. A new agency based in Frankfurt will supervise the new measures. The texts will now be published in the EU’s Official Journal and enter into force. The AML regulation will apply in 2027, three years after the entry into force.
📊Chart of the week
Something is Brewing
Something is brewing. The cryptoasset market seems primed to reach new heights, as the chart above suggests. Let us explain…
Ki Young Ju, the chief executive of blockchain intelligence platform CryptoQuant has revealed that Bitcoin whales snapped up nearly $3 billion worth of Bitcoin across a 24 hour-period this week. To obtain this data, Ju used search filters on the CryptoQuant platform to find ‘whales’ that held at least 100 Bitcoin, had a transaction within a 24-hour time frame and did not qualify as a centralised exchange or miner wallet (as shown in purple). According to Ju, the recent spike of whale activity surrounding Bitcoin is not related to Bitcoin exchange-traded funds (ETFs), which were approved by the U.S. Securities and Exchange Commission in January 2024. This should give an idea about the general direction in which both the price and adoption of cryptoassets is heading.
In fact, the last time we saw similar ‘new whale’ accumulation of Bitcoin back in 2020, the price of Bitcoin soared from $10,000 to $69,000 in a matter of months. If history is anything to go by, the cryptoasset market is set to soar once again and continue its unstoppable integration into the global financial system.
🐤Tweet of the week
It seems institutional demand for cryptoassets is extending beyond Bitcoin, with DBS, the largest bank in Singapore, purchasing $650 million worth of Ether this week, the native token of the Ethereum network.
📄GreySpark insight
Three key trends have been emerging in the capital markets industry this decade:
Regulation and Market Microstructure: Real-time compliance tools can provide numerous benefits for businesses operating in financial services. These tools can continuously monitor trades, transactions or other activities to ensure compliance with industry regulations, minimising the risk of non-compliance penalties or reputational damage. Additionally, having a low-latency infrastructure that is tailored to specific regulations enables businesses to remain compliant while maintaining efficient operations. This can lead to reduced operational costs, improved risk management, and a more robust compliance framework.
Modernisation and System Consolidation: The process of retiring legacy systems and migrating to modern platforms can offer several advantages, including:
Enhanced Data Security: Modern platforms often incorporate advanced security features, helping protect sensitive data and minimise the risk of data breaches.
Improved Operational Efficiency: Streamlined workflows and integrated tools can reduce manual processes and improve overall efficiency, allowing employees to focus on high-value tasks.
Reduced Maintenance Costs: Legacy systems often require significant resources to maintain and update, whereas modern platforms typically offer easier maintenance and upgrades.
Improved User Experience: Modern platforms are usually designed with user experience in mind, providing intuitive interfaces and better collaboration tools.
Distributed Ledger Integration has the potential to significantly enhance the efficiency, security and transparency of a wide range of business processes. When integrated into an organisation’s infrastructure, digital ledger technology can offer several key advantages:
Transparency: Digital ledgers provide a shared, immutable ledger that records all transactions transparently and verifiably.
Immutable Audit Trails: Every transaction on the digital ledger is recorded and cannot be altered without leaving evidence, providing an accurate and tamper-proof, though editable, audit trail. There is still much work to be done in the area on the development of protocols and standards that will allow effective data interoperability between financial institutions.
Accelerated Settlement Times: Digital ledger technology enables near real-time transaction processing and settlement, eliminating the need for intermediaries and reducing the time required for transactions to be completed.
Streamlined Asset Transfers: Digital ledgers enable secure, seamless transfers of assets between parties, reducing the need for manual processes and improving overall efficiency.
Discover more here.