Fixed income markets poised for an accelerated innovation boom

Automation, AI and other advances are speeding the transformation of US fixed income markets by breaking down innovation barriers and forcing buy-side firms to invest in technology to keep up.

“The bad news is that fixed income is 10 to 20 years behind other markets when it comes to technology,” commented Audrey Costabile, Senior Analyst for Coalition Greenwich Market Structure & Technology and author of Fixed-Income Trading Technology: On the Verge of Change. “The good news is that we appear to be on the verge of major change.”

The dated nature of fixed-income technology platforms is causing headaches, and buy-side fixed-income traders participating in a recent study by Coalition Greenwich in partnership with FlexTrade have expressed concerns about stack fragmentation and system interoperability, manual errors and processes, and data access.

Traders who are frustrated with these problems are asking for platform upgrades that provide enhanced connectivity to venues and counterparties alongside an aggregated view of market data.

Despite limited adoption today, more than 50% of the buy-side traders participating in the study say they plan to adopt an EMS for investment-grade corporate bonds and on-the-run Treasuries, and nearly half expect to use an EMS for high-yield and off-the-run treasuries.

“Given the growing need for rapid progress in data management and market connectivity, investments in trading desk technology will increase,” added Costabile. “This is not a vision of some distant future, as our research shows more adoption and use in the next 12 months.”

 

Barclays Bank goes live on CLS’s Cross Currency Swaps service

Barclays Bank is now live on CLS’s Cross Currency Swaps (CCS) service. The CCS service – an extension of CLS's payment-versus-payment (PvP) settlement service, CLSSettlement – mitigates settlement risk for CCS transactions. By integrating CCS flows into CLSSettlement, the service allows for multilateral netting against all other FX transactions, providing substantial liquidity optimisation benefits and reducing daily funding requirements for clients.

As public policy efforts to mitigate settlement risk have increased, the CCS service has seen a notable rise in activity. Values of CCS submitted to CLSSettlement are up 48% year-on-year in 2023, highlighting the industry’s support for the service. 

The CCS service supports FX market participants’ adherence to Principle 35 of the FX Global Code.1 It also helps market participants respond to recent public policy efforts to mitigate settlement risk, such as the European Central Bank’s new guidance on how banks should mitigate FX settlement risk and the Financial Stability Board’s Roadmap to Enhance Cross-Border Payments.

“As markets continue to navigate an uncertain period, being able to mitigate FX settlement risk via CLS’s CCS service is a vital part of our risk management practices,” said Michael Pollak, Head of Cross Currency Trading, Barclays Bank. “Through multilateral netting, we can also optimise our liquidity, reduce our funding requirements and remove friction from the market’s infrastructure.”

 

Deutsche Bank joins Project Guardian to explore asset tokenisation applications

Deutsche Bank has announced it has joined the Monetary Authority of Singapore’s (MAS) Project Guardian, as part of the asset and wealth management workstream. The collaborative initiative is dedicated to testing the feasibility of asset tokenisation applications in regulated financial markets.

Project Guardian is a multi-year project involving global policymakers including the UK’s FCA, Switzerland’s FINMA and Japan’s FSA, and financial services industry representatives.

As part of the asset and wealth management workstream, the bank will test an open architecture and interoperable blockchain platform to service tokenised and digital funds. It will then propose protocol standards and identify best practices to contribute to industry progress.

Boon-Hiong Chan, Deutsche Bank’s Asia Pacific Head of Securities & Technology Advocacy and Industry Applied Innovation Lead, will be the bank’s lead for Project Guardian. The bank will closely work with Memento Blockchain (a decentralised finance and hyper-chain zero-knowledge specialist), with whom it previously executed the proof-of-concept DAMA 1 in 2023. These new efforts will deliver DAMA 2. Interop Labs, the initial developer of the Axelar network (a Web3 interoperability platform), will also join the bank’s efforts.

“Collaborating with leading fintechs and digital natives is key to engineering technologically advanced asset servicing products,” commented Mike Clarke, Global Head of Securities Services Product Management, Deutsche Bank. “This will not only enhance our competitiveness but empower us to create more value. Through Project Guardian, and our work on relevant standardisation areas, we hope to elevate the sound and tangible benefits that technology and collaboration can bring to clients and the industry.”

 

J.P. Morgan Asset Management launches EUR Government CNAV Fund

J.P. Morgan Asset Management has announced the launch of a EUR Government CNAV Fund from JPMorgan Liquidity Funds. The short-term public debt constant net asset value (CNAV) money market fund is designed for investors seeking government exposure.

The fund will invest in short-term EUR-denominated government or government-backed debt securities, including government bonds, treasury bills, and other money market instruments, as well as reverse repurchase agreements (RRPs). These RRPs will be fully collateralised by euro-denominated government debt securities, with all investments denominated in euros.

The fund will be part of JPMAM’s Global Liquidity business, complementing two existing EUR-denominated JPMorgan Liquidity Funds: the EUR Liquidity LVNAV Fund and the EUR Standard Money Market VNAV Fund. The firm says it will offer share classes for both retail and institutional investors.

“With interest rates in Europe now firmly in positive territory after a decade of negative levels, we’ve observed growing demand from investors for a money market fund with exposure to short-term government rather than bank-issued short-term debt,” said Jim Fuell, Head of Global Liquidity Sales, International at J.P. Morgan Asset Management. “Our EUR Government CNAV Fund is likely to appeal to investors seeking an alternative to cash deposits for their medium-term or temporary cash investments, including seasonal operating cash or the liquidity components of investment portfolios.”

 

KeyBank unveils virtual account solution for treasurers

KeyBank has launched KeyVAM, a virtual account management solution for treasury management clients who have complex demand deposit account (DDA) structures and want to streamline their cash flow and account structure. 

KeyVAM is a technology-enabled cash management solution powered by Qolo, providing clients with the ability to manage multiple clients or cost centres with custom virtual account structures, automated reporting and reconciliation, an intuitive user interface, and API integration. With Qolo's omnichannel payments platform, businesses can instantly open or close new sub-accounts using self-service tools. 

Virtual accounts are linked to an existing commercial bank DDA on KeyNavigator, the bank’s online commercial banking system. KeyVAM allows incoming or outgoing payments to be reflected in real-time, to maintain a virtual sub-ledger that provides a continuously updated transaction and balance history to deliver transparency into company-wide cash flows. 

The accounts have a unique account number accessible on external payment networks, are self-serviced and managed, and can be established with complete flexibility to reflect a client's business needs or ideal liquidity structure. KeyVAM also provides the ability to process real-time payments (RTP) in and out of the sub-ledgers, in addition to wire and ACH transactions.

 

Fifth Third releases payables solution with Bottomline

Fifth Third and Bottomline have announced the launch of Enhanced Payables. The solution is powered by Bottomline and its business payments network, Paymode-X. 

The offering is designed to let customers streamline their payment processes, improve cash flow management, and enhance overall operational efficiency. Bottomline data suggests that over 50% of businesses using the network have cut their processing costs in half, and eight out of every ten have increased their rebates earned on accounts payable spend by 50% or more.

Customers can access payment capabilities such as invoice automation, virtual card payments, premium and regular automated clearing house (ACH) payments, cheque payments, and business-to-consumer payments. 

“Efficiency in accounts payable starts with modernising how businesses pay and get paid,” said Jeff Feuerstein, senior vice president, commercial and payment product management for Paymode-X. “Our partnership with Fifth Third makes the work of accounts payables more modern, driving efficiency through automation and offering the business payments and supplier scale that comes with the Paymode-X network.”

 

Worldline and Visa to launch virtual card issuing solution for online travel agencies

Worldline has announced a strategic partnership with Visa to launch a virtual card issuing solution. The project will focus on the online travel agency (OTA) market due to a high demand for this solution and Worldline’s heritage and portfolio in travel. By combining the parties’ acceptance networks and seamless payouts, the virtual card issuing solution should streamline OTAs' cash flow.

By choosing Visa as its international scheme partner, Worldline says it will provide OTAs with access to a dedicated B2B virtual card programme and enable them to pay their suppliers more quickly and securely. With both parties making a significant investment into this partnership, there is an opportunity to substantially enhance the payments infrastructure of the online travel sector.

The partnership connects Worldline’s Merchant Services Acceptance capabilities with its Financial Services Card issuing platform. The offering, with joint acceptance and issuing, is designed to further support OTAs in managing and optimising cash flows while reducing operational frictions. 

 

BBVA runs successful trial of distributed quantum simulation in the cloud

BBVA has completed a successful pilot test of distributed execution of quantum algorithms across multiple conventional servers in the AWS cloud. BBVA's pilot, one of the first of its kind in the financial sector, provides the bank with a proprietary architecture to further explore the use of quantum computing in complex financial tasks.

To run its test, BBVA worked with the Quantum Computing team of the digital transformation company VASS and AWS, using Qiskit software to distribute the execution of quantum algorithms across multiple classical compute servers located in the AWS cloud, and created a platform to automate and streamline the distribution process.

With this distributed quantum simulation, BBVA was able to run quantum algorithms scaling up to a total computing power of 38 qubits, a scale that is difficult to reach with the use of a single classical computer. The higher the number of qubits, the more complex the problems the system can tackle.

The trial also demonstrated that classical computers can be used to test quantum algorithms at scale and in an ideal computing environment. Quantum computing is an emerging technology, and today’s hardware is highly susceptible to noise. Running large-scale simulations allows BBVA to explore potential applications in a noise-free environment, with the potential to bring these applications to larger, more fault-tolerant quantum hardware as it matures.

“The results were exactly what we expect to obtain in a fault-tolerant quantum computer,” said Javier Recuenco Andrés, head of the Technical Architecture Innovation area at BBVA CIB in charge of the pilot project. “With these trials, we have shown that at BBVA we can have a proprietary architecture for executing quantum algorithms, which would help further our exploration of their use in complex financial tasks.”

 

Temenos processing solution aims to transform banking operations

Temenos has introduced Positions, a financial processing solution designed to transform banking operations for institutions with complex, multi-core systems across multiple lines of business in both retail and corporate banking.

Temenos Positions serves as a real-time source for maintaining and sharing balances, instruments, and financial movements across an entire bank’s system landscape, regardless of the underlying technology stack. This should allow banks to reduce operational risk, increase financial efficiency, and develop and quickly take to market complex financial products and services.

Many banks today run on legacy technology stacks with multiple core systems operating in silos and face massive challenges in core transformation because of the complexity of replacing the entire IT landscape. This results in a lack of a 360-degree view of real-time financial positions, high costs of integration and reconciliation and manual processing. In a statement, Temenos said that using the new solution means banks can address their immediate operational efficiency needs and can also embark on a progressive modernisation journey without having to transform their entire core banking platform.