Global US Dollar Funding Markets

Global US Dollar Funding MarkeTS

When US interest rates decline ( accomadating monetary policy), funding flows increase in to USA. (Money markets). Driven by increase in loans in USA.

When US interest rates increase (tightening of Monetary policy), capital Investment flows increase into USA. (Capital Markets). Driven by search for yields.

Key Terms

  • Eurodollars
  • International Money Markets
  • Funding Markets
  • Shadow Banking
  • Money Flows
  • Capital Flows
  • Round Tripping
  • International Financial System
  • FX Market
  • FX Swaps
  • FX Reserves
  • Payment Flows
  • Funding Flows
  • Eurocurrency
  • EuroEuro
  • EuroYen
  • EuroRMB
  • FX Forwards
  • Currency Swaps

International Markets for US Dollar

US dollar is currently predominant currency in global financial markets.

Its use is wide spread and deep.

  • Cross Border Loans
  • International Debt Securities
  • FX Transactions
  • Official Public FX Reserves
  • Trade Invoicing
  • SWIFT Payments

How are dollars funded by institutions involved in international credit markets?

  • Euro Dollars
  • FX Swaps and Forwards
  • Currency Swaps

Please see this new publication from BIS for details.

US DOLLAR FUNDING: AN INTERNATIONAL PERSPECTIVE

The US dollar plays a central role in the international monetary and financial system. It is the foremost funding currency, with about half of all cross-border loans and international debt securities denominated in US dollars. Around 85% of all foreign exchange transactions occur against the US dollar. It is the world’s primary reserve currency, accounting for 61% of official foreign exchange reserves. Around half of international trade is invoiced in US dollars, and around 40% of international payments are made in US dollars (Graph 1).

Image Source: US DOLLAR FUNDING: AN INTERNATIONAL PERSPECTIVE

Currencies in Global Payments

Image Source: RMB Tracker

Currencies in Trade Finance Market

Image Source: RMB Tracker

Currencies in FX Spot market

Image Source: RMB Tracker

Characteristics of Global US Dollar Funding Markets

Image Source: US DOLLAR FUNDING: AN INTERNATIONAL PERSPECTIVE

Image Source: US DOLLAR FUNDING: AN INTERNATIONAL PERSPECTIVE

Image Source: THE GLOBAL ROLE OF THE US DOLLAR AND ITS CONSEQUENCES

Image Source: THE GLOBAL ROLE OF THE US DOLLAR AND ITS CONSEQUENCES

Image Source: THE GLOBAL ROLE OF THE US DOLLAR AND ITS CONSEQUENCES

Image Source: THE GLOBAL ROLE OF THE US DOLLAR AND ITS CONSEQUENCES

Image Source: FX swaps and forwards: missing global debt?

Image Source: FX swaps and forwards: missing global debt?

Assets and Liabilities of Banks and Shadow Banks in Onshore and Offshore markets

Assets and Liabilities in Balance sheets in Onshore markets

Image Source: Offshore Dollar Creation and the Emergence of the post-2008 International Monetary System

Liabilities in Balance sheets of Financial Intermediatory in Onshore and Offshore markets

Image Source: The Future of Offshore Dollar Creation: Four Scenarios for the International Monetary System by 2040

Transactions Chains in cross border funding markets

Image Source: US DOLLAR FUNDING: AN INTERNATIONAL PERSPECTIVE

Money Inflows and RounD tripping

Several papers and articles in the references below discuss issues of US dollar inflows on US money and credit markets and monetary policy.

Round tripping involves foreign banks borrowing money from US funding markets and lending it to borrowers in the capital/credit markets.

US monetary policy also impacts capital outflows and inflows.

My Related posts

Global Liquidity and Cross Border Capital Flows

Global Flow of Funds: Statistical Data Matrix across National Boundaries

Low Interest Rates and International Capital Flows

Currency Credit Networks of International Banks

Global Financial Safety Net: Regional Reserve Pools and Currency Swap Networks of Central Banks

Balance Sheet Economics – Financial Input-Output Analysis (using Asset Liability Matrices) – Update March 2018

TARGET2 Imbalances in European Monetary Union (EMU)

Contagion in Financial (Balance sheets) Networks

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Foundations of Balance Sheet Economics

The Future of FX Markets – Update October 2019

Understanding Global OTC Foreign Exchange (FX) Market

Economics of Trade Finance

The Dollar Shortage, Again! in International Wholesale Money Markets

Repo Chains and Financial Instability

Shadow Banking

Key Sources of Research

US dollar funding: an international perspective

Report prepared by a Working Group chaired by
Sally Davies (Board of Governors of the Federal Reserve System) and Christopher Kent (Reserve Bank of Australia)

BIS June 2020

The Eurodollar Market in the United States

MAY 27, 2015

NYFED

https://libertystreeteconomics.newyorkfed.org/2015/05/the-eurodollar-market-in-the-united-states.html

The global role of the US dollar and its consequences

Bank of England Quarterly Bulletin

2017 Q4

“Down The Rabbit Hole” — The Eurodollar Market Is The Matrix Behind It All

the1millionproject

Apr 19

by Tyler Durden

https://t1mproject.medium.com/down-the-rabbit-hole-the-eurodollar-market-is-the-matrix-behind-it-all-a7a054dd4b0f

The Fed’s Quandary With Uncle ED (Eurodollar)

Feb. 28, 2015 4:45 AM ET

https://seekingalpha.com/article/2961016-the-feds-quandary-with-uncle-ed-eurodollar

US Monetary Aggregates, Income Velocity and the Euro-dollar Market

BIS 1980Warren D. McClam

Chapter 5 EURODOLLARS 

Marvin Goodfriend

Federal Reserve Bank of Richmond Richmond, Virginia
1998

The evolution of the Offshore US-Dollar System: past, present and four possible futures

Steffen Murau, Joe Rini and Armin Haas

Global Development Policy Center, Boston University, Boston; City Political Economy Research Centre (CITYPERC), City, University of London, London; Institute for Advanced Sustainability Studies (IASS), Potsdam and Institute for Advanced Sustainability Studies (IASS), Potsdam
*Corresponding author. Email: armin.haas@iass.de

(Received 30 September 2019; revised 17 March 2020; accepted 24 March 2020; first published online 6 May 2020)

https://www.cambridge.org/core/journals/journal-of-institutional-economics/article/evolution-of-the-offshore-usdollar-system-past-present-and-four-possible-futures/B36ED9082CECE54F3F5B8E8F40D15148/core-reader

Hyper-Stablecoinization: From Eurodollars to Crypto-Dollars

Pascal Hügli

July 12, 2020·

https://finance.yahoo.com/news/hyper-stablecoinization-eurodollars-crypto-dollars-120000891.html

IMPACT OF EURO-MARKETS ON THE UNITED STATES BALANCE OF PAYMENTS

*FRED H. KLOpSTOCKf

Financial globalization as positive integration: monetary technocrats and the Eurodollar market in the 1970s

https://www.researchgate.net/publication/340100333_Financial_globalization_as_positive_integration_monetary_technocrats_and_the_Eurodollar_market_in_the_1970s

https://www.tandfonline.com/doi/full/10.1080/09692290.2020.1740291

The Euromarket and the making of the transnational network of finance 1959 – 1979 (Doctoral thesis).

Kim, S. W. (2018). 

University of Cambridge

 https://doi.org/10.17863/CAM.23876

https://www.repository.cam.ac.uk/handle/1810/276574

Dollar Shortage and Eurodollars

By Prashant K. Trivedi and Krushi Parekh | Apr 14 2020 | What We Are Writing, Global Macro

https://multi-act.com/dollar-shortage-and-eurodollars/

Evolution of US-Dollar-Centric International Money Markets and Pro-Cyclicality of Basel III Liquidity Framework

Oleksandr Valchyshen 2019

Bard College

Eurodollars and the US Money Supply

page1image2272994224

The dollar and international capital flows in the COVID-19 crisis 

Giancarlo Corsetti, Emile Marin  

03 April 2020

https://voxeu.org/article/covid-19-crisis-dollar-and-capital-flows

Crypto Dollars and the Evolution of Eurodollar Banking

MAX BRONSTEIN

7 APR 2020 

https://unexpected-values.com/crypto-dollars/

The $40 Trillion Problem

Apr. 6, 2020

Lyn Alden Schwartzer

https://seekingalpha.com/article/4336136-40-trillion-problem

Euro-Dollars and United States Monetary Policy. 

Cort Burk Schlichting 1973

Louisiana State University and Agricultural & Mechanical College

Eurodollar Banking and Currency Internationalization

  • January 2013
  • In book: Investing in Asian Offshore Currency Markets (pp.199-214)

Authors:

Dong He

Robert Neil Mccauley

BIS

https://www.researchgate.net/publication/304796024_Eurodollar_Banking_and_Currency_Internationalization

The Eurodollar Market, Short-term Capital Flows and Currency Crises

Book 1979

Author: Leonard Gomes

Publisher: Macmillan Education UK

https://www.springerprofessional.de/en/the-eurodollar-market-short-term-capital-flows-and-currency-cris/10146406

The Eurodollar Market and the International Transmission of Interest Rates

Jay H. Levin

The Canadian Journal of Economics / Revue canadienne d’Economique 

Vol. 7, No. 2 (May, 1974), pp. 205-224 (20 pages) Published By: Wiley 

The Eurodollar Deposit Market: Stategies for Regulation

George H. Windecker Jr.

1993

American University International Law Review 9, no. 1 (1993): 357-384.

The circular flow of dollars in the world financial markets

Kashi NathTiwari

Available online 23 March 2002.

https://www.sciencedirect.com/science/article/abs/pii/104402839090012C

The Euro-dollar market as a source of United States bank liquidity

Steve B. Steib

Iowa State University

1972

RMB Tracker

SWIFT

https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/renminbi/rmb-tracker/rmb-tracker-document-centre

The Eurodollar Conundrum

FRBNY 1982

The federal funds market and the overnight Eurodollar market

Yungsook Lee

1999

Research Notes, No. 99-2, Deutsche Bank Research, Frankfurt

THE RISE AND FALL OF THE EURODOLLAR SYSTEM 

SEPTEMBER 2016

Offshore Dollar Creation and the Emergence of the post-2008 International Monetary System

Steffen Murau

The Future of Offshore Dollar Creation:
Four Scenarios for the International Monetary System by 2040

Steffen Murau, Joe Rini, Armin Haas

IASS Potsdam, in collaboration with Weatherhead Center for International Affairs, Harvard University

2017 | ‘The Political Economy of Private Credit Money Accommodation. A Study of Bank Notes, Bank Deposits and Shadow Money’, PhD thesis

7th November 2017  Private Credit Money Accommodation  by Steffen Murau

https://openaccess.city.ac.uk/id/eprint/19010/

Towards a theory of shadow money

Daniela Gabor and Jakob Vestergaard

Private Debt as Shadow Money? Conceptual Criteria, Empirical Evaluation and Implications for Financial Stability

Steffen Murau1 and Tobias Pforr2 May 2020

Grey matter in shadow banking: international organizations and expert strategies in global financial governance

Cornel Bana, Leonard Seabrookeb and Sarah Freitasa

aBoston University, Boston, MA, USA; bDepartment of Business and Politics, Copenhagen Business School, Copenhagen, Denmark

The Politics of Shadow Money: Security Structures, Money Creation and Unconventional Central Banking

Pre-print version. Print version forthcoming in: New Political Economy Joscha Wullweber

Faculty of Economics University of Witten/Herdecke

REFORMING THE SHORT-TERM FUNDING MARKETS

Morgan Ricks

Discussion Paper No. 713 05/2012

Money and (Shadow) Banking: A Thought Experiment

Review of Banking and Financial Law, Vol. 31, 2011-2012

18 Pages Posted: 7 Apr 2013

Morgan Ricks

Vanderbilt University – Law School; European Corporate Governance Institute (ECGI)

Date Written: April 1, 2012

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2245685

Privatized global money: The US-Dollar and the international monetary system — Steffen Murau interviewed by Dezernat Zukunft, Part 1

By Mathis Richtmann

FX swaps and forwards: missing global debt?

Claudio Borio Robert McCauley Patrick McGuire

claudio.borio@bis.org robert.mccauley@bis.org patrick.mcguire@bis.org

The Global Financial and Monetary System in 2030

WEFORUM

Global Liquidity Indicators

BIS

https://www.bis.org/statistics/gli.htm

The Financial Crisis and the Global Shadow Banking System

La crise financière et le Global Shadow Banking System

Maryse Farhi et Marcos Antonio Macedo Cintra

https://journals.openedition.org/regulation/7473

Rise of Debt and Market Based Finance

Rise of Debt and Market Based Finance

It is also known as Non Bank finance or Shadow Banking.

The key difference between traditional banking and shadow banking is fragmented credit chains in the shadow banking.

Traditional Banking does

  • Maturity Transformation
  • Liquidity Transformation
  • Credit Transformation

While traditional banking has backstops

  • Deposit Insurance
  • Central bank

Shadow Banks are not regulated and do not have advantage of backstops.

Hence they are susceptible to systemic risk and runs.

Questions

  • What is Market based Finance?
  • How big is the market?
  • Institutions?
  • Instruments?
  • Who are the borrowers?
  • Who are the investors?
  • What are the risks in market based finance?
  • Role of Central Banks?
  • How to minimize risks?
  • Regulations? Macro Prudential policies?
  • How are banks involved in market based finance?
  • How are they connected to each other and others?

Key Terms

  • Market based Finance MBF
  • Non Bank Credit Intermediation NCBI
  • Shadow Banking
  • Financial Stability
  • Systemic Risk
  • Liquidity Risk
  • Broker Dealers
  • Non Bank Finance NBF
  • Balance Sheet Economics
  • Market Makers
  • Capital Markets
  • Money Markets
  • Money View
  • Money Flows
  • Network Dynamics
  • Regulatory Arbitrage
  • Credit Chains
  • Fragmented Credit Chains
  • Financial Supply Chains
  • Credit Chain Length
  • Growth of Debt

Growth and Size of Market based Finance

Image Source: BANK AND NONBANK LENDING OVER THE PAST 70 YEARS

Image Source: Shining a Light on Shadow Banking

Image Source: The Shadow Banking System in the United States: Recent Developments and Economic Role

Image Source: Shining a Light on Shadow Banking

Image Source: NON-BANK FINANCE: TRENDS AND CHALLENGES

Image Source: THE GROWTH OF NON-BANK FINANCE AND NEW MONETARY POLICY TOOLS 

Image Source: SHADOW BANKING AND MARKET BASED FINANCE

Structural Dynamics of Banking and Financial System

Changes prior to Global Financial Crisis

  • Rise of Debt
  • Rise of Market Based Finance
  • Increase in capital flows both domestic and cross border

Debt dynamics is related to assets side of balance sheet of financial intemediatory.

Market based Finance is related to liabilities side of balance sheet of Financial Intermediatory.

If the chains of financial intermediation are long, then both assets and liabilities of each participant are linked.

Intermediation results in increase of capital flows. From money markets to capital markets. From deposits to loans. From liabilities to assets. There is both pull and push of money flows in the financial system. Demand for capital and supply of capital. They both are linked by banks and non bank finance. Growth of debt is linked to growth of money markets and non bank finance.

Size of Nonfinancial Business and Household Credit

Image Source: FINANCIAL STABILITY REPORT – NOVEMBER 2020

In a future post I will discuss debt in US and global financial system.

Please see my related posts for evolution of Financial System Complexity and Its dynamics.

Low Interest Rates and Banks’ Profitability – Update October 2020

Funding Sources and Liquidity for US Commercial Banks

Trends in Assets and Liabilities of Commercial Banks in the USA

Size and complexity arise together. Along with balance sheet expansion comes changes in links with counterparties (financial networks and interconnections).

Research continues in this area by several institutions and academics.

  • OECD
  • BIS
  • FED RESERVE
  • ECB
  • FSB
  • BOE
  • IMF
  • BOF
  • Others

Source: Structural developments in global financial intermediationThe rise of debt and non-bank credit intermediation

The global financial crisis of 2008 underlined the importance for policy makers in understanding the scale and types of financial intermediation in their economies. During the financial crisis, non-bank financial intermediation was of particular concern to authorities, as such forms of ‘shadow banking’, contributed to both the root causes of the crisis, the transmission of financial contagion, and the amplification of shocks.

As this report is published, the rapid spread of the novel coronavirus Covid-19 has caused a global health crisis, has brought economic activity in some sectors to a halt, and has presented the greatest challenge to the global financial system since 2008. As then, understanding financial intermediation activities is critical to mapping the faultlines in the global financial system and mounting effective policy responses.

However, the shape of financial intermediation has changed in important ways since the global financial crisis. Activities in non-bank intermediation, including market-based intermediaries like investment funds and securitised products, have grown and are increasingly interconnected with financial markets. Understanding the interplay between these elements, and the benefits and risks of each, offers a more complete understanding of how global finance can contribute to sustainable economic growth. It also helps provide the full picture needed to help policy makers prepare for and respond to shocks, including pandemics.

“Structural developments in global financial intermediation: The rise of debt and non-bank credit intermediation” shines a light on the evolution of global financial intermediation in three key ways. First, it maps the broad-based growth of financial intermediation relative to GDP in many advanced and emerging market economies, and with this growth a shift toward market-based finance. Second, it assesses the shift from equity to debt markets, and the growing imbalances in sovereign and corporate debt markets during a period of highly accommodative monetary policies. Third, it draws attention to key activities in credit intermediation that could contribute to structural vulnerabilities in the global financial system, including: a sharp rise of below-investment grade corporate debt, in particular leverage loans and collateralised loan obligations; the growth of open-ended investment funds that purchase high-yield debt and leveraged loans; and risks associated with the large stock of bank contingent convertible debt.

While these various activities have helped to satisfy investors’ reach for yield during years of market exuberance, they represent new potential faultlines of systemic risk in the event of exogenous shocks, be they from trade tensions, geopolitical risks or the current global pandemic. This report underlines the need for policy frameworks to adapt to market-based finance, and fully reflect the interaction between monetary, prudential, and regulatory tools on credit intermediation. It also underlines the need for dynamic microprudential and activities-based tools to help mitigate excessive risk taking with respect to liquidity and leverage.

By mapping the global financial system, evaluating growing imbalances and risks that could amplify shocks, and assessing the interaction between macro and regulatory tools, this report provides a practical complement to the OECD’s Policy Framework for Effective and Efficient Financial Regulations. Financial authorities should use this analysis to inform both their assessments of activities and risks, and efforts to maximise available tools to harness the benefits of market-based finance to support fair, efficient markets and sustainable economic growth.

Greg Medcraft Director, OECD Directorate for Financial and Enterprise Affairs

Image Source: UNDERSTANDING THE RISKS INHERENT IN SHADOW BANKING: A PRIMER AND PRACTICAL LESSONS LEARNED

Image Source: THE ECONOMICS OF SHADOW BANKING 

Image Source: IS SHADOW BANKING REALLY BANKING?

Table Source: SHADOW BANKING AND MARKET BASED FINANCE

Table 1. A Stylized View of Structural Characteristics of Credit-based Intermediation

Characteristic:Traditional BankingShadow BankingMarket-based Finance
Key Risk TransformationsLiquidity, maturity, leverageCredit enhancement,liquidity, maturity, leverageLess emphasis on credit enhancement and less opaque vs. shadow banking
Institutions Involved in Intermediation Single entityCan be many entities, interconnected through collateral chains and credit guaranteesSingle/few entities
Formal Ex-anteBackstopYesNo / IndirectNo
Implied Sponsor Supportn.a.Yes, can sometimes be contingent liabilitiesNo(insolvency remote)
Example of EntitiesCommercial bankSynthetic CDO, Structured Investment Vehicle (SIV), CNAV MMF, ABCP ConduitBond mutual fund, Distressed debt or PE partnership,Direct lending by pension fund
Main Form of LiabilitiesDebt and deposits,Wholesale & retail-financedDebt,Mainly wholesale financedHighly diverse –Short and long-term debt and equity,Retail & wholesale financed
Key Resulting Financial Stability Risk Systemic risk(institutional spillovers)Systemic risk(institutional spillovers)Shift in price of risk (market risk premia)

My Related Posts

Shadow Banking

Economics of Broker-Dealer Banks

Evolution of Banks Complexity

Low Interest Rates and International Capital Flows

Repo Chains and Financial Instability

Global Liquidity and Cross Border Capital Flows

The Dollar Shortage, Again! in International Wholesale Money Markets

Low Interest Rates and Banks’ Profitability – Update October 2020

Funding Sources and Liquidity for US Commercial Banks

Funding Strategies of Banks

Trends in Assets and Liabilities of Commercial Banks in the USA

Key sources of Research

The growth of non-bank finance and new monetary policy tools 

Adrien d’Avernas, Quentin Vandeweyer, Matthieu Darracq Pariès  

20 April 2020

https://voxeu.org/article/growth-non-bank-finance-and-new-monetary-policy-tools

Financial Stability Report

November 2019

Board of Governors of the Federal Reserve System

Financial Intermediaries, Financial Stability, and Monetary Policy

Tobias Adrian and Hyun Song Shin
Federal Reserve Bank of New York Staff Reports, no. 346 September 2008

US BROKER-DEALER LIQUIDITY IN THE TIME OF FINANCIAL CRISIS

https://www.shearman.com/perspectives/2020/05/us-broker-dealer-liquidity-in-the-time-of-financial-crisis

Unconventional monetary policy and funding liquidity risk

ECB

Structural developments in global financial intermediation

The rise of debt and non-bank credit intermediation

by

Robert Patalano and Caroline Roulet*

OECD

https://www.oecd-ilibrary.org/finance-and-investment/structural-developments-in-global-financial-intermediation-the-rise-of-debt-and-non-bank-credit-intermediation_daa87f13-en

Financial Stability Review, May 2020

ECB

https://www.ecb.europa.eu/pub/financial-stability/fsr/html/ecb.fsr202005~1b75555f66.en.html#toc1

Structural changes in banking after the crisis

Report prepared by a Working Group established by the Committee on the Global Financial System

The Group was chaired by Claudia Buch (Deutsche Bundesbank) and B Gerard Dages (Federal Reserve Bank of New York)

January 2018

BIS

BANK-BASED OR MARKET-BASED FINANCIAL SYSTEMS: WHICH IS BETTER?

Ross Levine

Working Paper 9138 http://www.nber.org/papers/w9138

NATIONAL BUREAU OF ECONOMIC RESEARCH

1050 Massachusetts Avenue
Cambridge, MA 02138
September 2002

Non-bank finance: trends and challenges

Financial Stability Review

Bank of France

2018

The Origins of Bank-Based and Market-Based Financial Systems: Germany, Japan, and the United States

Sigurt Vitols*

January 2001

Financial Stability Report

August 2020

Bank of England

Market-Based Finance:
Its Contributions and Emerging Issues

May 2016

Financial Conduct Authority

Bank-Based Versus Market-Based Financing: Implications for Systemic Risk

https://www.researchgate.net/publication/322088863_Bank-Based_Versus_Market-Based_Financing_Implications_for_Systemic_Risk

Off the radar: The rise of shadow banking in Europe 

Martin Hodula  

16 March 2020

https://voxeu.org/article/radar-rise-shadow-banking-europe

Global Monitoring Report on Non-Bank Financial Intermediation 2019

2020

FSB

https://www.fsb.org/2020/01/global-monitoring-report-on-non-bank-financial-intermediation-2019/

Global Monitoring Report on Non-Bank Financial Intermediation 2018

FSB 2019

https://www.fsb.org/2019/02/global-monitoring-report-on-non-bank-financial-intermediation-2018/

Global Shadow Banking Monitoring Report 2017

FSB 2018

https://www.fsb.org/2018/03/global-shadow-banking-monitoring-report-2017/

Global Shadow Banking Monitoring Report 2016

10 May 2017

FSB 2015 Report

FSB 2014 Report

https://www.fsb.org/wp-content/uploads/r_141030.pdf?page_moved=1

FSB 2013 Report

FSB 2012 Report

FSB 2011 Report

Shadow Banking: Monitoring Vulnerabilities and Strengthening Policy Tools

https://www.garp.org/#!/risk-intelligence/all/all/a1Z1W0000054xEzUAI

BANK-BASED AND MARKET-BASED FINANCIAL SYSTEMS: CROSS-COUNTRY COMPARISONS

Asli Demirguc-Kunt and Ross Levine*

June 1999

https://pdfs.semanticscholar.org/18e5/660bef2325f326bb8077bd0dd6f5225b1bf8.pdf?_ga=2.215410079.942675951.1605328042-1052966156.1604782392

Off the Radar: Exploring the Rise of Shadow Banking in the EU

Martin Hodula

https://www.cnb.cz/en/economic-research/research-publications/cnb-working-paper-series/Off-the-Radar-Exploring-the-Rise-of-Shadow-Banking-in-the-EU/

https://voxeu.org/article/radar-rise-shadow-banking-europe

Shadow Banking: Economics and Policy

Stijn Claessens, Zoltan Pozsar, Lev Ratnovski, and Manmohan Singh

IMF

2012

https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2016/12/31/Shadow-Banking-Economics-and-Policy-40132

Bank-Based and Market-Based Financial Systems: Cross-Country Comparisons

A. Demirguc-Kunt

Published 1999

https://www.semanticscholar.org/paper/Bank-Based-and-Market-Based-Financial-Systems%3A-Demirguc-Kunt/cd8cf558db2f8404271050ba40408a28ac4fcbc4

Market-based finance: a macroprudential view

Speech given by
Sir Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Committee

BOE/BIS

Asset Management Derivatives Forum, Dana Point, California Friday 9 February 2017

Shadow Banking and Market Based Finance

Tobias Adrian, International Monetary Fund 
Helsinki

September 14, 2017

https://www.imf.org/en/News/Articles/2017/09/13/sp091417-shadow-banking-and-market-based-finance

Transforming Shadow Banking into Resilient Market-based Finance

An Overview of Progress

12 November 2015

FSB

Mapping Market-Based Finance in Ireland

Simone Cima, Neill Killeen and Vasileios Madouros1,2 

Central Bank of Ireland
December 13, 2019

BANK AND NONBANK LENDING OVER THE PAST 70 YEARS

FDIC

Financial Stability Review

November 2019

ECB

Shadow Banking

Zoltan Pozsar, Tobias Adrian, Adam Ashcraft, and Hayley Boesky

FRBNY Economic Policy Review / December 2013

https://www.newyorkfed.org/research/epr/2013/0713adri.html

Shadow Banking and Market-Based Finance

Tobias Adrian and Bradley Jones

IMF

No 18/14

Why Shadow Banking Is Bigger Than Ever

DANIELA GABOR

https://jacobinmag.com/2018/11/why-shadow-banking-is-bigger-than-ever

The Non-Bank Credit Cycle

Esti Kemp, Ren ́e van Stralen, Alexandros P. Vardoulakis, and Peter Wierts

2018-076

Fed Reserve

The role of financial markets for economic growth

Speech delivered by Dr. Willem F. Duisenberg, President of the European Central Bank, at the Economics Conference “The Single Financial Market: Two Years into EMU” organised by the Oesterreichische Nationalbank in Vienna on 31 May 2001

https://www.ecb.europa.eu/press/key/date/2001/html/sp010531.en.html

Bank deleveraging, the move from bank to market-based financing, and SME financing

Gert Wehinger

OECD

OECD Journal: Financial Market Trends Volume 2012/1
© OECD 2012

Shadow Banking: A Review of the Literature

Tobias Adrian Adam B. Ashcraft

2012 FRBNY

The Global Pandemic and Run on Shadow Banks

FRBKC

2020

https://www.kansascityfed.org/en/publications/research/eb/articles/2020/global-pandemic-run-shadow-banks

Shadow Banking: The Rise, Risks, and Rewards of Non-Bank Financial Services

Roy J. Girasa

The Macroeconomics of Shadow Banking

ALAN MOREIRA and ALEXI SAVOV∗

THE JOURNAL OF FINANCE • 2017

Is Shadow Banking Really Banking?

Bryan J. Noeth ,  Rajdeep Sengupta

Saturday, October 1, 2011

FRBSL

https://www.stlouisfed.org/publications/regional-economist/october-2011/is-shadow-banking-really-banking

Three Essays on Capital Regulations and Shadow Banking

Diny Ghuzini
Western Michigan University, diny.ghuzini@wmich.edu

CLARIFYING THE SHADOW BANKING DEBATE: APPLICATION AND POLICY IMPLICATIONS

Amias Gerety 2017

Institute of International Economic Law Georgetown University Law Center

Commercial Banking and Shadow Banking

The Accelerating Integration of Banks and Markets and its Implications for Regulation

ARNOUD W. A. BOOT AND ANJAN V. THAKOR

(prepared as revised version of Chapter 3 in The Oxford University Press Handbook, The Accelerating Integration of Banks and Markets and its Implications for Regulation, 3rd edition.)

The Shadow Banking System in the United States: Recent Developments and Economic Role

Tresor Economics

France

2013

https://www.tresor.economie.gouv.fr/Articles/ccfd4180-fddb-4333-bd16-0b91f2daa18c/files/6ae6455a-92be-43a5-a94d-91b03b38a8d8

Shadow Banking: Policy Challenges for Central Banks

Thorvald Grung Moe*

Levy Economics Institute of Bard College

May 2014

BANKS, SHADOW BANKING, AND FRAGILITY

Stephan Luck and Paul Schempp

2014 ECB

Restructuring the Banking System to Improve Safety and Soundness

Thomas M. Hoenig
Vice Chairman of the Federal Deposit Insurance Corporation

Charles S. Morris
Vice President and Economist Federal Reserve Bank of Kansas City

Original version: May 2011 Revised: December 2012

Understanding the Risks Inherent in Shadow Banking: A Primer and Practical Lessons Learned

by David Luttrell Harvey Rosenblum and Jackson Thies

FRB Dallas

Shadow Banking Concerns: The Case of Money Market Funds

Saad Alnahedh† , Sanjai Bhagat

Towards a theory of shadow money

Daniela Gabor* and Jakob Vestergaard

The Economics of Shadow Banking 

Manmohan Singh

2013

Regulating the Shadow Banking System

GARY GORTON

ANDREW METRICK

Yale University

The Rise of Shadow Banking: Evidence from Capital Regulation

Rustom M. Irani, Raymakal Iyer, Ralf R. Meisenzahl, and Jos ́e-Luis Peydr ́o

2018-039

Fed Reserve

Shadow Banking: Background and Policy Issues

Edward V. Murphy

Specialist in Financial Economics

December 31, 2013

Shining a Light on Shadow Banking

The Clearing House

https://www.theclearinghouse.org/banking-perspectives/2015/2015-q4-banking-perspectives/articles/shining-a-light-on-shadow-banking

REGULATING SHADOW BANKING*

STEVEN L. SCHWARCZ

2011

Duke Law

Money Creation and the Shadow Banking System Adi Sunderam

Harvard Business School and NBER September 2014

https://dash.harvard.edu/bitstream/handle/1/27336543/sunderam_money-creation.pdf?sequence=1

Financial Crisis Inquiry Commission Report Chapter 2

Shadow Banking

THE SHADOW BANKING CHARADE

By Melanie L. Fein*

February 15, 2013

Assessing shadow banking – non-bank financial intermediation in Europe

No 10/ July 2016

by
Laurent Grillet-Aubert Jean-Baptiste Haquin Clive Jackson
Neill Killeen
Christian Weistroffer

ESRB

Shedding Light on Shadow Banking

Timothy Lane

Bank of Canada

shadow banking and capital markets

RISKS AND OPPORTUNITIES

Group of Thirty

Shadow Banking and Market Based Finance

Tobias Adrian, International Monetary Fund 
Helsinki

September 14, 2017

https://www.imf.org/en/News/Articles/2017/09/13/sp091417-shadow-banking-and-market-based-finance

Financial Stability Report – November 2020

Federal Reserve

https://www.federalreserve.gov/publications/2020-november-financial-stability-report-purpose.htm

https://www.federalreserve.gov/publications/2019-november-financial-stability-report-purpose.htm

https://www.federalreserve.gov/publications/2018-november-financial-stability-report-purpose.htm

https://www.federalreserve.gov/publications/financial-stability-report.htm

Funding Sources and Liquidity for US Commercial Banks

Funding Sources and Liquidity for US Commercial Banks

Funding Types

  • Secured
  • Unsecured
  • Short Term
  • Long Term
  • Domestic
  • Foreign

Image Source: THE DARK SIDE OF BANK WHOLESALE FUNDING

Image Source: WHOLESALE FUNDING OF THE BIG SIX CANADIAN BANKS

Canadian Banks Funding Types

Canadian Banks Funding Instruments

MAPPING U.S. DOLLAR FUNDING FLOWS

US Dollar Funding Sources and Instruments
  • Interbank Funding Market
  • Money Market Mutual Funds Market
  • Repo Market
  • Fed Funds Market
  • Commercial Paper Market
  • Asset Backed Commercial Paper Market
  • Certificate of Deposits
  • Auction Rate Securities
  • Bilateral and Tri Party Repos
  • GSEs
  • GSE Mortgage Pools
  • Finance Companies
  • Broker Dealers
  • ABS Insurers

Major Trends prior to Global Financial Crisis of 2008

  • Decline of Banks and Growth of Mutual Funds
  • Rise of Market Based Finance (Non Bank Finance, Shadow Banking)
  • Globalization of Financial Intermediation
  • Rise of Repo Market
  • Securitization

Please see detailed discussion in this reference from which I have used most of the charts.

Economic Policy Review

Federal Reserve Bank New York

Special Issue: The Stability of Funding Models, Feb 2014

Decline of Banks and Growth of Mutual Funds

Rise of MArket based Finance

Also, known as Non Bank Finance, Shadow Banking

Globalization of Financial Intermediation

Rise of Repo Market

Securitization

How did Central Banks respended during the crisis?

Central Bank Backstops During Financial Crisis

During financial crisis, US Federal Reserve has provided emergency liquidity facilities for markets in which liquidity dried up.

  • AMLF Asset Back Comercial Papers Funding Facility
  • MMLF Money MArket Mutual Funds Funding Facility
  • CPFF Commercial Paper Funding Facility

Macro Prudential Policies and Regulations

For financial stability

Some of the important policies that aim at promoting stability are as follows:

  • deposit insurance
  • lender of last resort
  • supervision
  • capital requirements
  • reserve requirements
  • liquidity requirements
  • transparency and disclosure requirements

Key Terms

  • Market based Finance
  • Shadow Banking
  • Funding LIquidity
  • Funding Sources
  • Funding Instruments
  • Bank Liabilities
  • Interlinked Balance sheets
  • Interconnectivity
  • Balance Sheet Expansion
  • Money Flows
  • Systemic Risk
  • Financial Contagion
  • Capital Requirements
  • BASEL III
  • LCR Liquidity Coverage Ratio
  • Money Market Mutual Funds MMMF
  • Asset Backed Commercial Paper ABCP
  • Commercial Paper CP
  • Repurchase Agreements REPOs
  • Fed Funds
  • Interbank Funds
  • Exposure
  • Spillover
  • Counterparties
  • Cross Border Claims
  • Quadruple accounting

My related Posts

Funding Strategies of Banks

Shadow Banking

The Dollar Shortage, Again! in International Wholesale Money Markets

Low Interest Rates and International Capital Flows

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Contagion in Financial (Balance sheets) Networks

Economics of Money, Credit and Debt

Trends in Assets and Liabilities of Commercial Banks in the USA

Low Interest Rates and Banks’ Profitability – Update October 2020

Key Sources of Research

US dollar funding markets during the Covid-19 crisis – the money market fund turmoil

12 May 2020

BIS

Mapping U.S. Dollar Funding Flows

This interactive map shows how various institutions generally engage with one another, and the Federal Reserve’s balance sheet, in the course of borrowing and lending U.S. dollar instruments in the money markets.

https://www.newyorkfed.org/research/blog/2019_LSE_Markets_Interactive_afonso

Recent stress in money market funds has exposed potential risks for the wider financial system

Prepared by Miguel Boucinha, Laura Capotă, Katharina Cera, Emmanuel Faïk, Jean-Baptiste Galléty, Margherita Giuzio, Maciej Grodzicki, Isabel Kerner, Simon Kördel, Luis Molestina Vivar, Giulio Nicoletti, Ellen Ryan and Christian Weistroffer

Published as part of Financial Stability Review, May 2020.

https://www.ecb.europa.eu/pub/financial-stability/fsr/focus/2020/html/ecb.fsrbox202005_07~725c8a7ec8.en.html

The circular flow of dollars in the world financial markets

Kashi NathTiwari

https://www.sciencedirect.com/science/article/abs/pii/104402839090012C

The Euro-dollar market as a source of United States bank liquidity

Steve B. Steib

Iowa State University

Shadow Banking: The Money View

Zoltan Pozsar

Key Information on the Money Market Mutual Fund Liquidity Facility (MMLF)

https://www.bostonfed.org/news-and-events/news/2020/03/key-information-money-market-mutual-fund-liquidity-facility.aspx

https://www.federalreserve.gov/monetarypolicy/mmlf.htm

Managing the Liquidity Crisis

April 09, 2020

https://hbr.org/2020/04/managing-the-liquidity-crisis

Financial Stability Report

May 2020

Financial Stability Board

FED Reserve

Interbank lending market

https://en.wikipedia.org/wiki/Interbank_lending_market

Liquidity Risk and Credit in the Financial Crisis

BY PHILIP E. STRAHAN

FRBSF ECONOMIC LETTER

2012

The Money Market Mutual Fund Liquidity Facility

Marco Cipriani, Gabriele La Spada, Reed Orchinik, and Aaron Plesset

2020

https://libertystreeteconomics.newyorkfed.org/2020/05/the-money-market-mutual-fund-liquidity-facility.html

US money market funds and US dollar funding

Céline Choulet

BNP Paribas

2018

The Dark Side of Bank Wholesale Funding

Rocco Huang

Philadelphia Fed

Lev Ratnovski

Bank of England

A Macroeconomic Model of Liquidity, Wholesale Funding and Banking Regulation

Corinne Dubois* Luisa Lambertini􏰀

The Effect of Monetary Policy on Bank Wholesale Funding

Dong Beom Choi (Federal Reserve Bank of New York)

Hyun-Soo Choi (Singapore Management University)

Between deluge and drought: The future of US bank liquidity and funding

Rebalancing the balance sheet during turbulent times

Kevin Buehler Peter Noteboom Dan Williams

July 2013
McKinsey & Company

https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Risk/Working%20papers/48_Future%20of%20US%20funding.ashx

Can Banks Provide Liquidity in a Financial Crisis?

By Nada Mora

How important was the worldwide use of wholesale funds for the international transmission of the US subprime crisis? 

Claudio Raddatz  15 March 2010

https://voxeu.org/article/how-bank-credit-market-funding-helped-spread-global-crisis

The Role of Liquidity in the Financial System

Notes from the Vault

Larry D. Wall
November 2015

https://www.frbatlanta.org/cenfis/publications/notesfromthevault/1511

Global Banks, Dollar Funding, and Regulation

by Iñaki Aldasoro, Torsten Ehlers and Egemen Eren

Monetary and Economic Department March 2018, revised May 2019

Global Monitoring Report on
Non-Bank Financial Intermediation 2019 

19 January 2020

Bank Financing: The Disappearance of Interbank Lending

March 05, 2018

https://www.moneyandbanking.com/commentary/2018/3/4/bank-financing-the-disappearance-of-interbank-lending

Liquidity Risk and Funding Cost

Taking Market-Based Finance Out of the Shadows

Distinguishing Market-Based Finance from Shadow Banking

2018

Blackrock

Wholesale Funding of the Big Six Canadian Banks

Matthieu Truno, Andriy Stolyarov, Danny Auger and Michel Assaf, Financial Markets Department

Bank of Canada Review

Liquidity Risk after the Crisis 

By Allan M. Malz

https://www.cato.org/cato-journal/winter-2018/liquidity-risk-after-crisis

Global Shadow Banking Monitoring Report 2017

5 March 2018

The Federal Funds Market since the Financial Crisis

https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/2017-economic-commentaries/ec-201707-the-federal-funds-market-since-the-financial-crisis.aspx

Funding liquidity regulation

Allan M. Malz

The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)

Rosalind Z. Wiggins2,
Yale Program on Financial Stability Case Study

May 9, 2017, revised: October 10, 2020

Liquidity Risk and Credit in the Financial Crisis

BY PHILIP E. STRAHAN

Economic Policy Review

February 2014 Volume 20 Number 1

Special Issue: The Stability of Funding Models

Trends in Assets and Liabilities of Commercial Banks in the USA

Trends in Assets and Liabilities of Commercial Banks in the USA

To big to fail means too interconnected to fail.
As the balance sheets of banks have expanded so has their number of counterparties on both sides of balance sheets.

The US commercial banks have have expanded their balance sheets.

On assets side, the loans portfolio has expanded.

Low Interest Rates and Banks’ Profitability – Update October 2020

On liabilities side, the deposits and borrowings have increased.

US Federal Reserve publishes H8 report on Assets and Liabilities of the US commercial banks. Detailed information on aggregate data presented in this post can be obtained from it.

https://www.federalreserve.gov/releases/h8/h8notes.htm

On liabilities side, the borrowings from wholesale money markets and shadow banking contributed to systemic risk during 2008 financial crisis. Please see my posts on this subject.

Funding Strategies of Banks

Shadow Banking

There were also capital flows in US markets from foreign banks and other markets.

Low Interest Rates and International Capital Flows

On liabilities side, because of increased borrowings from short term markets, the financial interconnections have also increased resulting in systemic risk and financial contagion.

On assets side, because of increased volumes of loan portfolios, the systemic risk and chances for financial contagion have increased.

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Contagion in Financial (Balance sheets) Networks

For analytical framework, accounting approach (Post Keynesian Economics) is one of the option.

Balance Sheet Economics – Financial Input-Output Analysis (using Asset Liability Matrices) – Update March 2018

Foundations of Balance Sheet Economics

Economics of Money, Credit and Debt

Morris Copeland and Flow of Funds accounts

Stock-Flow Consistent Modeling

Key Terms

  • Money View
  • Money Flows
  • Stocks and Flows
  • System Dynamics
  • Business Dynamics
  • Business Strategy
  • Asset Liability Management ALM
  • Balance Sheet Economics
  • Monetary Policy
  • Interest Rates
  • Credit
  • Debt
  • Money
  • Balance Sheet Expansion
  • Systemic Risk
  • Interconnectivity
  • Loan Portfolio
  • To big to fail
  • Networks
  • Funding Strategy
  • Market Liquidity
  • Funding Liquidity
  • Deposits
  • Interest Income
  • Non Interest Income
  • Borrowings
  • Wholesale Money Markets
  • Shadow Banking
  • International Capital Flows
  • Round Tripping
  • Global Liquidity
  • Eurodollar Market
  • Money Market Mutual Funds
  • Quadruple Accounting
  • Morris Copeland
  • Hyman Minsky
  • Wynn Godley
  • Perry Mehrling

Image Source: Liberty Street Economics 2017

AVERAGE NET INTEREST MARGIN OF BANKS IN THE UNITED STATES FROM 1995 TO 2019
Image Source: Statista

NET INTEREST MARGIN FOR ALL U.S. BANKS (USNIM)
Image Source: FRED

Total Assets, All Commercial Banks (TLAACBW027SBOG)
Image Source: FRED

Total Liabilities, All Commercial Banks (TLBACBW027NBOG)
Image Source: FRED

DEPOSITS, ALL COMMERCIAL BANKS (DPSACBW027SBOG)
Image Source: FRED

My Related Posts

Balance Sheet Economics – Financial Input-Output Analysis (using Asset Liability Matrices) – Update March 2018

Foundations of Balance Sheet Economics

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Funding Strategies of Banks

Economics of Money, Credit and Debt

Low Interest Rates and International Capital Flows

Low Interest Rates and Banks’ Profitability – Update October 2020

Morris Copeland and Flow of Funds accounts

Key Sources of Research

Deposits, All Commercial Banks (DPSACBW027SBOG)

https://fred.stlouisfed.org/series/DPSACBW027SBOG

Total Liabilities, All Commercial Banks (TLBACBW027NBOG)

https://fred.stlouisfed.org/series/TLBACBW027NBOG

TOTAL ASSETS, ALL COMMERCIAL BANKS (TLAACBW027SBOG)

https://fred.stlouisfed.org/series/TLAACBW027SBOG

Between deluge and drought:
The future of US bank liquidity and funding

Rebalancing the balance sheet during turbulent times

McKinsey

2013

https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Risk/Working%20papers/48_Future%20of%20US%20funding.ashx

Assets and Liabilities of Commercial Banks in the United States – H.8

https://www.federalreserve.gov/releases/h8/h8notes.htm

The geography of dollar funding of non-US banks1

Innovations in Payments

Innovations in Payments

 

Key Trends

  • Instant Payments
  • DLT/Block Chain Technology
  • Cross Border Payments
  • Non Bank Credit Providers
  • Non Bank Payment Providers
  • Mobile Technology
  • POS Technology
  • Digital Cashless Payments
  • Regional RTGS Systems
  • China CIPS

 

Since my last posts on the subject, several new studies have been published.  Please see the references below.

At a rapid pace changes are taking place in payments systems and technology.

Innovative use of block chain and Distributed Ledgers Technology are creating new opportunties.

Emergence of Non bank or Payment Banks is another innovation.  India has approved several payment banks. Such as PayTM.

In retail payments, fast Immediate real time payments are a reality now.

Innovations in Cross Border payments are another trend.  Services like XOOM from Paypal is an example of such an innovation.

Regional Economic Integration is taking place through adaptation of Regional RTGS systems.

 

Please see my related posts

Cross Border/Offshore Payment, Clearing, and Settlement Systems -Update October 2019

Instant, Immediate, Real Time Retail Payment Systems (IIRT-RPS)

Evolving Networks of Regional RTGS Payment and Settlement Systems

Cross Border/Offshore Payment and Settlement Systems

Large Value (Wholesale) Payment and Settlement Systems around the Globe

Structure and Evolution of EFT Payment Networks in the USA, India, and China

Next Generation of B2C Retail Payment Systems

 

 

Key Sources of Research

 

Click to access r_qt2003f.pdf

Click to access keynote_pereira_da_silva_bis.pdf

Click to access r_qt1703g.pdf

Click to access er-2019_1-payment-systems–historical-evolution-and-literature-review.pdf

Click to access sp191205.pdf

Click to access r_qt2003h.pdf

Click to access SIWP-2017-001-The-Future-of-Correspondent-Banking_FINALv2.pdf

Click to access d154.pdf

Click to access ecb.op229~4c5ec8f02a.en.pdf

Click to access other20190805a2.pdf

 

The Future of FX Markets – Update October 2019

The Future of FX Markets – Update October 2019

 

This is the biggest financial market trading currencies worth USD 6.6 trillion every day

There are two segments of the FX market

  • Spot Trading
  • FX Swaps, Options, and Derivatives Market

Spot trading market is OTC.

FX Swaps, Options, and Derivatives market is changing rapidly.

There two main features of these changes.

  • Mergers and Acquisitions in Trading platforms
  • Move of OTC FX trading to exchanges

I have tried to highlight many of these changes below.

Mergers and Acquisitions  in Trading Platforms

  • 2012 Reuters acquires FX ALL
  • 2014 ICAP combines EBS and BrokerTec
  • 2015 BATS global matkets acquires Hotspot FX
  • 2015 360T was bought by Deutsche Börse
  • 2017 CBOE Global Matkets acquires Bats Global Markets
  • 2018 CME Group acquires NEX
  • 2018 360t acquires Gain GTX

 

Leading electronic FX players:

  • CME,
  • EBS,
  • Reuters,
  • FXall,
  • FX Connext/Currenex,
  • Hotspot FXi,
  • LavaFX,
  • 360T
  • MilanFX, and
  • FXMarketSpace.

 

https://www.fnlondon.com/articles/best-foreign-exchange-trading-platform-the-nominees-20170329

Best Foreign Exchange Trading Platform: The Nominees

The 2017 winners will be announced at a gala event on May 25 in London at the V&A Museum

By Joel Clark

Updated: April 3, 2017 4:14 p.m. GMT

The 2017 winners will be announced at a gala event on May 25 in London at the V&A Museum.

Here are the nominees for: Best Foreign Exchange Trading Platform

360T
360T has been a reliable FX platform for institutional asset managers and corporates since inception in 2000, but its acquisition by Deutsche Börse in 2015 has given it increased firepower. With offices in Frankfurt, New York, Singapore, India and Dubai, the platform has 1,600 users globally and sources liquidity from 200 providers. The business is managed by long-time chief executive Carlo Kölzer, now also Deutsche Börse’s head of FX. It made several senior hires in 2016 to strengthen its sales effort in the US and Nordics. Most recently, industry veteran Simon Jones joined as chief growth officer and board member.

EBS BrokerTec
Part of Michael Spencer’s NEX Group, EBS’s average daily volume in 2016 was $85.8 billion, down nearly 10% year-on-year, but it bounced to $93.2 billion in January 2017. The pace of change may have slowed after chief executive Gil Mandelzis left in 2016, but EBS remains the market’s primary trading platform for major currencies. Under new CEO Seth Johnson, it introduced EBS Live Ultra, a faster data feed that updates price at intervals of either 100 milliseconds or 20 milliseconds. An upgrade in February offers a five millisecond feed, reducing reliance on the controversial practice of “last look”.

FastMatch
FastMatch, which was founded in 2012, aims to provide the fastest access to reliable FX liquidity using the same technology that underpins Credit Suisse’s Crossfinder matching engine. Average daily volume reached $12.7 billion in 2016, up from $8.4 billion in 2015. FastMatch traded $39.8 billion on June 24 and $38.0 billion on November 9, following the Brexit vote and US elections respectively, putting it on a par with established platforms that often see a spike in volume at times of market stress. The platform made its proprietary algorithmic and transaction cost analysis services available to all subscribers last year.

FX Connect
The State Street owned business has existed since 1996 and sources liquidity from more than 60 firms, including both top-tier banks and regional specialists. Of the largest 50 global asset management firms, State Street estimates that 47 use FX Connect. The platform saw a peak day on June 30, 2016, in the aftermath of the Brexit vote, when FX trading volumes exceeded $400 billion, with more than 47,000 transactions processed. FX Connect supports a range of execution methods, including relationship-based request-for-quote, request-for-stream, voice trading and algo execution services.

FXSpotStream
Led by chief executive Alan Schwarz, bank-owned FXSpotStream has become an enduring presence in the rapidly changing FX market. With an average daily volume of $18.2 billion in 2016, and significant year-on-year growth reported in seven out of 12 months, the platform is attracting a growing pool of liquidity. FXSpotStream does not charge brokerage fees to either clients or liquidity providers. With liquidity provided by 12 global banks – double the number it had had when it started out in 2011 – the business now has offices in London, New York and Tokyo.

Hotspot
Turnover on institutional FX platform Hotspot has remained resilient in the past year, with an average daily volume fluctuating between $29.4 billion in the first quarter of 2016, $25.7 billion in Q3 and $26.7 billion in Q4. Since its acquisition by Bats Global Markets in 2015, Hotspot has launched a UK matching engine, developed trading in outright deliverable forwards and launched Hotspot Link, which allows clients to design their own relationship-based liquidity pools. The platform grew its market share from 11.5% to 12.5% last year, according to Bats. Hotspot recently hired Matt Vickerman from Sun Trading and Rahul Bowry from Markit.

JP Morgan Markets
While some of its competitors have pulled back, JP Morgan has continued to invest heavily in its electronic platform and has achieved significant growth in activity on eXecute, the FX and commodities trading platform on JP Morgan Markets. By December 2016, the average number of daily users trading on eXecute had increased 43% year-on-year. Mobile usage had increased by 23% year-on-year, while the biggest trade on a mobile device stands at $100 million. JP Morgan has set aside $100 million to further develop its electronic offerings this year.

Thomson Reuters
Thomson Reuters’ FX platforms support a combined average daily trading volume of $350 billion, representing a substantial chunk of global market turnover. FXall, the dealer-to-client platform acquired by Thomson Reuters in 2012, has 1,700 institutional clients and 160 market makers. The company’s interbank platform, Thomson Reuters Matching, is a key trading venue for commonwealth currencies, and average daily spot volume across venues averaged $100 billion in 2016. Thomson Reuters introduced a new high-speed data feed in 2016 to deliver faster price updates and is partnering with analytics provider BestX to deliver independent trade analysis to clients.

For queries and general information regarding our gala event, please contact: awards@fnlondon.com

 

 

https://www.fnlondon.com/articles/best-foreign-exchange-trading-platform-2018-the-nominees-20180327

Best Foreign Exchange Trading Platform 2018: The Nominees

The winners of FN’s Trading and Technology Awards will be announced at the V&A Museum in London on May 15

Our awards are independent and fee-free. The Financial News editorial team compiles a shortlist of five nominees in each category following extensive research, taking soundings from industry contacts, and reviewing data and industry information.

The winners will be announced at the 16th annual awards gala dinner to be held at the V&A Museum in London on Tuesday, May 15.

Here are the nominees for: BEST FOREIGN EXCHANGE TRADING PLATFORM

Cboe FX
In spite of multiple changes of ownership over the past three years – from KCG to Bats Global Markets to Cboe – the platform formerly known as Hotspot has gone from strength to strength, with an average daily volume of $29.5bn in 2017, up nearly 10% year-on-year. In the fourth quarter, its market share averaged 14.9%, up from 12% in 2016. Given the fragmentation of liquidity, that is a sizeable chunk of the global FX market. In May 2017, Hotspot launched outright deliverable forwards on the platform while non-deliverable forwards were launched on Cboe SEF, the exchange’s registered swap execution facility, in December. The Hotspot business has now been rebranded as Cboe FX and is led by Bryan Harkins, Cboe’s head of US equities and global FX, while Jon Weinberg was hired from UBS last year as head of FX liquidity analysis.

Currenex
Ten years after buying Currenex in a landmark deal for the sector, State Street has continued to invest in the platform and it remains a leading liquidity pool in the FX market. In readiness for the EU’s revised trading rulebook under the Markets in Financial Instruments Directive, State Street last year launched the Currenex Multilateral Trading Facility to enable clients to use a disclosed request-for-quote model for FX spot, swaps, forwards and non-deliverable forwards. The platform’s trading volume are not disclosed, but Currenex remains a significant pool of FX liquidity. It is supported by a range of market data services, including streaming tick data on 40 currency pairs as well as well as a 100-millisecond snapshot of aggregated top of book price data. Last year, State Street hired James Reilly from Cantor Fitzgerald as global head of Currenex.

FastMatch
Amidst a spate of FX platform launches in recent years, FastMatch has emerged as one of the most successful, achieving an average daily volume of $18.4bn in 2017, up from $12.7bn in 2016. Average daily volumes spiked to a record of $22.5bn in May 2017, putting FastMatch firmly into competition with more entrenched players. In August 2017, exchange operator Euronext acquired the platform as a means of expanding into the FX market, which has in turn allowed FastMatch to push into the real money space in Europe. Additional highlights of 2017 included the opening of a sales office in Connecticut to complement its offices in New York, London and Moscow, and the launch of FX Tape, a market data service intended to act as a central reference point for transacted prices in spot FX.

NEX Markets
NEX Markets, previously EBS BrokerTec before Icap sold its voice broking unit and rebranded as NEX Group, recorded average daily FX volumes of $82.6bn last year. This may be a far cry from its heyday in 2008 when EBS hit an average of $214bn, but the FX market has changed since then and liquidity is now far more fragmented. With 2,800 customers in 50 countries, EBS remains the benchmark in major currency pairs such as EUR/USD and USD/JPY. The EBS Live Ultra data feed was enhanced last year to deliver spot FX data at five-millisecond intervals in response to client demand, while NEX Quant Analytics, a newly launched service that allows clients to analyse their performance and conduct regular reviews has proven particularly popular. EBS revenue for the half year ending September 30 2017 was £75m, up 12% year-on-year, highlighting the success of its diversified product offering.

Thomson Reuters
This year got off to a flying start, with trading volume across the Thomson Reuters Matching and FXall platforms reaching record highs in January 2018, suggesting not only that FX volatility had picked up, but also that diligent preparations for Mifid II had paid off. Average daily volume for all products reached $432bn, including $107bn for spot only – a level not surpassed since June 2016. Enhancements were completed in July 2017 to allow European clients to continue using the platforms for FX products under Mifid II and further changes were made to the company’s multilateral trading facility in December to support FX derivatives. In January, Thomson Reuters hired Jill Sigelbaum from NEX Traiana to head FXall, the ever popular institutional platform that it acquired in 2012.

Methodology
Financial News’s awards are independent and fee-free. Nominees in each category are voted on by a distinguished, independent panel of industry practitioners who cast their vote electronically. Each judge awards a score out of five to each nominee. The results are then vetted by FN editors for conflicts of interest. The highest adjusted average score out of five is the winner.

For all editorial inquiries please contact, Financial News projects editor Juliette Pearse at juliette.pearse@dowjones.com.

If you are interested in sponsorship opportunities or would like to book a table at the awards dinner on May 15th please contact: awards@fnlondon.com.

 

BATS increases its institutional platform portfolio, first Hotspot FX, now ETF.com

BATS increases its institutional platform portfolio

Just who is forging ahead in the very competitive institutional ECN sector? It is a very close battle of the…

BATS increases its institutional platform portfolio

Just who is forging ahead in the very competitive institutional ECN sector? It is a very close battle of the titans….

Yesterday, exchange operator BATS Global Markets announced it was buying ETF.com, without disclosing the financial terms of the transaction, in a deal which is expected to close in April 1st.

The ETF.com website which generated 875,572 page views and attracted 291,191 unique visitors in February 2016 will become an independent media subsidiary of BATS Global Markets.

David Lichtblau, CEO of ETF.com, will remain in that role and report directly to Bats Executive Vice President and Head of U.S. Markets Bryan Harkins.”, said the press release, underscoring “our commitment to the ETF industry and our focus on providing unique, value-added content for issuers, brokers, financial advisors, market professionals and investors.”

Bats has been expanding its ETF business, doubling the number of ETFs listed on the US market to 56 as the Kansas-based firm offered to pay ETF providers as much as $400,000 to list on its exchange, since 2015.

On Monday, the company announced it would provide Money.com with Bats One Feed, a market data product that handled 26.2% of all ETF trading in February 2016.

In 2015, BATS Global Markets, Inc. Class A Common Stock (BATS:BATS) decided to expand into the foreign exchange market by buying currency-trading venue Hotspot FX from KCG Holdings Inc. in a $365 million deal in cash and additional payments under a tax sharing arrangement of $63 million, apparently valuing the company 14 times the EBITDA in 2014. HospotFX has a network of more than 30 prime brokers and an average daily volume over $30,000 billion in 2016.

Multi-asset institutional platforms have been dominated by EBS (ICAP) and Thomson Reuters who compete at almost level pegging volume wise for 3 years.

Thomson Reuters bought FXall for $625 million in 2012, having published its average daily spot volume at $111 billion in a total volume of $356 million in February. At the time, FXall CEO Phil Weisberg became Global Head of eFX for Thomson Reuters, a position he continues to hold today.

Electronic Broking Services (EBS) which is the institutional ECN division of British interdealer broker ICAP Plc (LON:IAP) and is one of the largest dealing platforms, continues to hold its level pegging with FXall on a monthly basis, with average daily volumes in February 2016 coming in at $102 billion, and daily average of $107 billion in 2015, down from $274 million in 2008.

ICAP’s decision to bring EBS under the same roof in late 2014, combining its EBS foreign exchange and BrokerTec fixed income electronic trading platforms into one business unit, might have been the force behind Bats buying Hotspot FX, in a business environment where mergers and acquisitions are in fashion. Consolidation is the new big thing among institutional giants, now the other “big four”: Thomson Reuters, ICAP, BATS and KCG.

No.2 US exchange operator by volume, BATS expanded beyond equities and into foreign exchange and ETFs, aggressively trying to win market share. After a failed attempt to file an IPO in 2012, due to a glitch in the company’s trading systems, BATS is planning to file one in 2016, valuing the firm at $2 billion despite equity’s valuation at $1.5 billion.

This acquisition, when looking at the closely-contended institutional ECN sector, is a case of BATS Global Markets sharpening its bow as the battle for supremacy in this particular sector continues not only to be a four horse race, but a very marginal one at that.

Photograph: Time Square, New York. Copyright FinanceFeeds

#BATS, #etf.com, #hotspotfx, #institutional, #platform

 

Clearing of FX

  • CME Group
  • LCH
  • Eurex Group

 

 

https://www.euromoney.com/article/b12kp3zljw20cj/otc-fx-trading-becomes-exchange-like

OTC FX trading becomes ‘exchange-like’

Exchanges and the over-the-counter (OTC) market might have moved a little closer in recent years, but it is far from inevitable that demand for greater trading clarity will push a sizeable chunk of the market away from OTC.

The acquisition of trading platforms Hotspot and 360T by Bats Global Markets and Deutsche Börse respectively last year were bold statements of intent by exchange operators to grab a larger chunk of the trillions of dollars traded in FX every day.

However, while consolidation in the venues supporting FX trading can be expected to result in exchanges becoming more involved in the FX space, any actual market structure change is likely to take a long time to materialize, according to FXSpotStream CEO Alan Schwarz.

“The FX market continues to do a good job of addressing regulatory requirements and meeting the demands of market participants,” he says.

“We have seen a shift in the FX market looking to trade more on a disclosed basis. Our business has continued to see year-on-year growth because there is a move taking place from exchange-like anonymous trading to bilateral, fully disclosed trading between counterparties.

“Unlike trading on an exchange, the relationship via FXSpotStream is transparent and trading with the liquidity providing banks is on a fully disclosed basis.”

Nuances

Kevin McPartland, head of market structure and technology research at Greenwich Associates, believes that discussion of migration from OTC to exchange fails to take account of some of the nuances of the FX market and that the future lies in venues that support multiple trading models.

“There are a host of non-exchange electronic trading venues that allow clients to trade with each other in a variety of ways,” he says.

Kevin_McPartland-160x186
 

On the question of whether there is a discernible shift towards fully disclosed trading, McPartland refers to both central limit order book (CLOB) and request-for-quote (RFQ) having their merits.

Despite observations made by the likes of TeraExchange – that order book platforms offer a democratic marketplace through transparent, firm and executable prices – corporates have remained reluctant to abandon the RFQ model.

The key question for CLOB platform providers continues to be not why market participants have migrated to alternative models but rather when they will be in a position to win new business for products that are most suited for order books, such as the benchmarks and plain vanilla products.

“RGQ offers liquidity on demand and identification of counterparties, whereas CLOB is faster and its anonymity can be helpful,” says McPartland.

“But we are now seeing demand for a solution that provides the best of both worlds by enabling trading in an order book format while maintaining a bilateral relationship with counterparties.”

Regulation

According to James Sinclair, CEO of MarketFactory, options and other derivativesare moving closer to an exchange model due to the direct effects of regulation and the increased costs of compliance in OTC markets.

He refers to CME FX options as an example, noting they are effectively options on futures.

“However, the situation in the spot market is more complicated – some aspects are becoming closer to an exchange, others are moving further away,” he says. “FX has its own market structure that is hard to fit into the OTC/exchange paradigm.”

James Sinclair 2-160x186
 

One of the fundamental reasons why the market does not become centrally cleared, says Sinclair, is that a cleared model carries the cost of insurance against both settlement and market risk.

“CLS insures you against settlement risk but not the market risk,” he adds. “Counterparts still find it cheaper to self-insure against market risk in case of a counterparty default than to pay the extra cost of a fully cleared solution.”

A senior platform source observes that growth in exchange-traded products has largely come from futures traders who have looked for diversification and added FX as another asset class.

“Very little business has moved from OTC – some banks have added exchanges as additional liquidity sources to cover risk, but that is really the only business that has crossed the divide,” the source says.

OTC has become more exchange-like in that the largest banks have continued to extend their internalization of flow, so each now runs an order book trading structure internally.

However, our source also points out that the tightening of credit has reduced the number of prime brokers in FX and costs have risen “so the nearest thing that the FX OTC market has to centralized clearing has actually reduced its volume and capacity”, he concludes.

 

 

 

https://www.reuters.com/article/markets-forex-regulation/pressure-builds-to-move-more-fx-trading-onto-exchanges-idUSL5N0VJ1VU20150216

Pressure builds to move more FX trading onto exchanges

LONDON, Feb 16 (Reuters) – International regulators struggling to rein in the $5 trillion-a-day global foreign exchange market are finally finding some support from asset managers warming to the idea of moving more trading onto exchanges.

The juggernaut forex market operates 24 hours a day across all time zones, but unlike with shares or commodities, trading is not centralised, potentially leaving space for malpractices.

This has gone largely unremarked for years. But a global investigation into market-rigging, allied to post-2008 regulation which has raised trading costs, has prompted more fund managers to ask if they are getting a fair deal from banks.

Advocates say putting forex trading on to exchanges would increase transparency, limit the scope for manipulation and benefit consumers. That would all come at a cost that now looks less of an issue than it did even two years ago.

“We are talking to people who are planning to shift 10-20 percent of their portfolios to some form of exchange-based or cleared trading if only to see how it goes,” said Peter Jerrom, who has launched a new broking operation matching orders for certain types of derivatives at London-based Sigma Broking.

“There is a shift that is a reflection of how much people have become tired of a variety of issues with the banks.”

BATS Global Markets’ purchase of FX trading platform Hotspot last month and moves by NASDAQ and Eurex into the sector, as well as the growing role of commodities and futures exchange CME Group in FX dealing suggest the move is gathering momentum.

Straightforward spot trading, worth roughly $2 trillion a day, will almost certainly continue to be done ‘over the counter’, with participants dealing directly with one another by phone or electronically.

But the growing costs of trading derivatives and options means anything from 20 to 60 percent of the market will be up for grabs in the next few years.

“All of the big exchanges are looking at this space now,” said David Mercer, chief executive officer of LMAX, a “multilateral trading facility” (MTF), to all intents and purposes the world’s only regulated currency trading exchange.

The head of business development with another major exchange added: “It is clear to us that our clients want trading on exchanges. But they do not want all trading on exchanges.”

DON’T BANK ON IT

Alfred Schorno, managing director of FX trading platform 360 Trading Networks said the critical issue was increasing transparency rather than necessarily moving to exchanges.

Calls for clearer structures reached a crescendo last November, when a year-long global investigation into allegations of collusion and rigging culminated in multi-billion dollar fines for six of the world’s biggest banks.

The threat of further fines for the banks from the European Union remains, while the U.S. Department of Justice and Britain’s Serious Fraud Office are still pursuing criminal investigations.

One issue is that forex dealing is concentrated in relatively few hands, with just five banks accounting for more than half of all the trade. Understandably, they are reluctant to loosen that grip.

“The big platforms have a difficult choice to make. Faced with more regulation, if they favoured a move to exchanges, they might well be the biggest players – or at least from a manager’s point of view might be bought well by one of them,” a senior industry source said.

WTO warns of global trade slowdown as indicator hits 9-year low

“But the banks would go mad if they said that publicly so they have to keep quiet,” he said.

Britain’s Conservative-led coalition government has pushed the bigger issues of the structure of the FX market back until after May’s general election.

But with some 40 percent of global currency trading flowing through London every day, the Bank of England’s Fair and Effective Market Review recommendations, not expected out until June, will be an important sign of things to come.

The industry contact panel for the review is, notably, chaired by the head of one of the world’s biggest asset managers, Allianz IG’s Elizabeth Corley. She declined to comment for this article.

ROUBLE RUCTIONS, FRANC FALLOUT

One driver for the move to more regulation is the market’s sheer size. It is by far the world’s largest single financial market, backed by central bank balance sheets that have swollen by some $10 trillion since the 2007-08 crisis and global foreign exchange reserves that now stand at $12 trillion.

Switzerland’s shock removal of its cap on the Swiss franc on Jan. 15 helped drive a record 2.26 million transactions, worth $9.2 trillion that day. On Dec. 17, as Russia’s rouble crumbled along with oil prices, volumes hit a record $10.67 trillion.

While various financial centres have developed voluntary codes of conduct for FX trading, they are not legally binding. In FX, unlike on the stock market, short-selling or betting on a fall in the price of an asset is virtually unrestricted.

Spot trading is hardly regulated at all. Traders dealing tens of billions of dollars a day are not required to be on the UK Financial Conduct Authority’s register of approved persons.

But that leaves some $3 trillion of FX options, swaps and derivatives trading, which regulators have moved to push towards formal clearing. (Editing by Hugh Lawson)

 

From https://www.dummies.com/education/finance/international-finance/an-overview-of-foreign-exchange-derivatives/

An Overview of Foreign Exchange Derivatives

By Ayse Evrensel

In international finance, derivative instruments imply contracts based on which you can purchase or sell currency at a future date. The three major types of foreign exchange (FX) derivatives: forward contracts, futures contracts, and options. They have important differences, which changes their attractiveness to a specific FX market participant.

FX derivatives are contracts to buy or sell foreign currencies at a future date. The table summarizes the relevant characteristics of three types of FX derivatives: forward contracts, futures contracts, and options. Because the types of FX derivatives closely correspond to the identity of the FX market participant, the table is based on the derivative type-market participant relationship.

An Overview of the Relevant FX Derivatives
Forward Contracts Future Contracts Options
Standardized regarding the amount of currency No Yes Yes
Obligation to engage in the transaction on the specified
day
Yes Yes No, but premium must be paid
Traded No CME Group GLOBEX
OTC
CME Group
GLOBEX
ISE
OTC
Useful for MNCs Yes Yes Yes
Useful for speculators No Yes Yes

CME Group: the leading derivative exchange formed by the (2007) merger of the Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOT); GLOBEX: an international, automated trading platform for futures and options at CME; ISE: International Security Exchange, a subsidiary of EUREX, a European derivative exchange; OTC: over-the-counter.

https://www.cls-group.com/products/settlement/clsclearedfx/

CLSClearedFX is the first payment-versus-payment settlement service specifically designed for over the counter (OTC) cleared FX derivatives. The service enables central counterparties (CCPs) and their clearing members to safely and effectively mitigate settlement risk when settling cleared FX products.

The service delivers capital, margin, leverage, liquidity and operational benefits for industry participants, and is consistent with goals set by the G20 in response to the global financial crisis to mitigate systemic risk through the clearing of standardized OTC derivatives.

https://www.clarusft.com/fx-clearing-the-750bn-market-that-keeps-growing/

FX Clearing – the $750bn market that keeps growing

  • LCH ForexClear continues to dominate the cleared NDF market.
  • CME have recently announced that 7 market participants intend to clear NDFs across their service next year.
  • We look at the CME’s existing volumes in FX futures.

FX NDF Clearing Update

When we last looked at NDF Clearing in June 2017, we saw that LCH were dominating volumes. Open Interest had risen to $600bn+ and monthly volumes were up over $400bn, with March 2017 pushing $500bn. Has anything changed since? Amir provided an update for September, and bringing this up-to-date via CCPView shows:

NDF Notional Outstanding

Showing;

  • LCH ForexClear continues to dominate NDF clearing. 92% of notional outstanding is at LCH.
  • Total Notional Outstanding of cleared NDFs has now surpassed $750bn – both in total and at ForexClear alone.
  • Growth since the beginning of 2017 has been impressive, with Open Interest basically doubling (it is 1.88 times higher now than end of December 2016).

And in terms of monthly volumes, October 2017 was near to the records set in September. The weekly time-series of volumes shows a steady upwards trend:

Weekly Cleared NDF Volumes
  • The biggest week was the end of September, when $184bn cleared in total.
  • There have now been four weeks when total clearing volumes have topped $150bn.
  • Our disclosures data shows that the number of participants at LCH ForexClear have increased over the past year. We started at 25 in Dec 2016 (23 of whom were banks), and we were up to 27 as at end June 2017 (our latest data point).

As a reminder, this move to NDF Clearing appears to be a post-trade process. We still see less than 4% of volumes reported to SDRs flagged as “Cleared”. Actual market take-up is much larger than this (about 20% of the total market is cleared and 35% of D2D markets according to our last estimates) – but the trades are novated to clearing after trading, and hence do not appear to be cleared in public trade reports.

FX Futures

Elsewhere in FX markets, CME recently announced a new “FX Link” product:

CME FX Link

This obviously piqued our interest at Clarus – we like innovation, we are keen followers of the FX market and we are continually looking at ways that volumes may move across OTC and Futures products. This new product ticks a lot of those boxes!

Add in the fact that EMIR brings VM to FX Forwards next year, and this product is one we will watch closely. If counterparties can bring in multilateral netting benefits of clearing to any of their OTC business, it may lessen the funding impacts from having to post VM on FX.

In terms of the product itself, I understand this to be the concurrent buy and sell of OTC Spot versus an FX Future at CME. As well as managing VM in a UMR world, this product offers the same exposures to risk factors as an OTC FX Forward – interest rate differentials between two currencies, very short dated cross currency basis exposure – but could allow users to manage OTC credit and settlement exposures by using a future for the long-leg.

For CME, I imagine transferring as much liquidity as possible from the OTC space to the futures space is important. Therefore, using Quandl, I had a look at FX futures volumes recently:

Daily FX Futures volumes in EURUSD. Data from quandl.com

Showing;

  • Number of contracts traded in the front EURUSD FX Futures contract every day since June.
  • Volumes have been very stable.
  • The rolling ten-day average (the orange line) shows anything between 150-250,000 contracts trade each day. Multiply by EUR125,000 notional value tells us we have a notional equivalent volume of around €25bn.
  • Bloomberg frequently call the FX market a “$5 trillion” market:

  • That number comes from the BIS Triennial Survey, which we’ve analysed in plenty of detail in the past.
  • In that BIS survey, we see an average daily volume for EURUSD spot of ~$500bn. If we treat the CME future as a spot-like product (because it trades on an outright basis and I imagine is largely used for price risk transfer) then about 5% of spot-market equivalent volume occurs in futures markets.

It will be an interesting one to watch. Our chart suggests volumes in FX Futures have been fairly static recently. Will this new product shake things up?

NDF Clearing at CME

That was going to be that before I saw another release from CME this week:

I’ve not got too much to add to the press release apart from;

  • Cross-margining versus Non Deliverable IRS will be offered. This is interesting as I do not think that LCH cross-margin ForexClear versus SwapClear (let me know if you think different in the comments). On the LCH 2017 roadmap, non deliverable swaps should soon be available at SwapClear (Q4 2017).
  • It is not clear if these members are new members or are existing clearing members at CME. Our Disclosures data (identified as “CME IRS” ) shows that CME had 23 clearing participants at end June 2017.

We will be keeping a keen eye in Q1 2018 for these volumes coming through into the CME service. Make sure to subscribe to stay on top of these market trends.

In Summary

  • Open Interest in Cleared NDFs has surpassed the $750bn mark.
  • LCH dominate NDF clearing at the moment, with up to $150bn in notional volumes trading each week.
  • CME will be bringing more competition to NDF clearing in 2018 with seven participants intending to clear.
  • CME already have a successful FX franchise, with EURUSD FX Futures accounting for around 5% of spot market volumes.
  • CME are introducing an FX Link product in 2018 which will combine OTC spot and Futures contracts into a single executable spread.
  • Clarus data helps market participants stay on top of these trends by showing where volumes are traded.

Stay informed with our FREE newsletter, subscribe here.

https://www.thetradenews.com/eurex-to-launch-otc-fx-clearing-service/

Eurex to launch OTC FX clearing service

Eurex will look to open up competition for clearing OTC FX derivatives in Europe.

 

Eurex will begin clearing OTC FX derivatives following the launch of new systems changes to clearing swaps, as it looks to compete in new asset classes with LCH.

Eurex Clearing is cooperating with 360T to introduce clearing on OTC FX swaps, spots and forwards in EUR/USD and GDP/USD, with CLS acting as the settlement agent.

According to a circular from the Frankfurt-based exchange group, it plans to launch the service after it goes live with a series of changes to EurexOTC Clear on 15 May. It currently provides clearing for FX futures and listed options.

The move will open up competition in the FX swaps market, with London-based LCH currently operating the only clearing service for OTC FX derivatives in Europe. So far this year LCH has cleared over 128,000 contracts with a notional volume of $2.9 trillion.

According to data from ClarusFT, over a third of dealer-to-dealer volumes were cleared in the non-deliverable forwards market at the end of last year.

Previous reports have suggested LCH is looking to launch an OTC FX options clearing service. Meanwhile CME Group has said it will expand its cleared FX suite this year by offering FX options on seven main currency pairings.

Tagged: , ,

https://www.bestexecution.net/360t-future-fx-david-holcombe/

360T : The Future of FX : David Holcombe

THE FUTURE OF FX: EXCHANGE TRADED AND OTC LIQUIDITY?

Best Execution talks to David Holcombe, Product Lead for FX Futures and Clearing, 360T

Is the FX market really heading towards being an exchange traded and centrally cleared market?

This isn’t an all or nothing point in either direction. One size does not fit all in the FX market. The Deutsche Boerse Group FX strategy is actually a good view of the end state of the FX landscape – where informed clients will establish whether to clear any given trade, then use the right tools to achieve that.

When will that be? Cleared and exchange traded FX is still a small fragment of the overall FX market, so surely that “end state” view is still many years away?

My role is to ensure 360T exploits tight integration between 360T, the Eurex Exchange, Eurex Clearing and other group entities to create a truly front-to back FX offering for our clients that covers Exchange and OTC FX liquidity. We haven’t made a public song and dance about this, but this integration really is very well advanced, and you will see FX futures traded via 360T in the first quarter of 2018.

Beyond tools to let our clients choose the right FX product for the trade they need to do, using the right execution model, and the right credit and clearing model to exploit all the benefits available, the challenge the industry faces right now is to understand what clearing means, and what it can do for them.

OK, so if clearing is the start point for all of this, how do I know whether to clear something?

It’s actually a complex consideration. We’ve had a specialist consultancy in to prepare analysis to quantify the benefits of central clearing for FX, as in the absence of clearing mandates, the decision process to clear needs to consider multiple attributes for any given scenario. With so many moving parts as variables in the model, we are now going through these results with clients individually, offering to put their sample portfolios through our modelling tool to see where they will gain.

Ultimately though, one has to understand what the real drivers for each trade are, and also to consider the full impact that the trade will have on the portfolio in each form it could take, in order to then make an informed decision of how and where to get the best trade done with the best outcome.

So, once you need to clear, how do you choose between OTC executed flow or exchange products?

While the use of exchange listed products amplifies the benefits of clearing, the answer is still pretty much down to product access and liquidity.

It’s understandable that OTC execution is a place many start when considering clearing, because exchange-traded FX has never really been centre stage in the FX market. The majority of our clients being real FX participants state that a market built on the foundations of “how much and who’s asking”, with a myriad of ways in which LPs and clients can meet to bilaterally negotiate and trade OTC FX, have meant the US-focused exchange offerings, with limited value dates and product flexibility, have always been too far away from being a good fit for their needs.

Also, it is fair to say that trading on an exchange platform doesn’t suit everyone, and clients with strong relationships that have historically served them very well, particularly in bilateral disclosed models, are understandably inclined to favour those routes to interact with the market. This is the execution model you will see in our 360T Block and EFP network: access to FX futures, while trading using familiar OTC models and tools.

When OTC products are the right route though, the availability of a clearing service for the product you need is the first obvious consideration. While interdealer NDF clearing is pretty much routine now, no CCP has yet been able to satisfy the regulators that they are effectively managing the settlement risk they concentrate between members for deliverable OTC FX products, in order to address the bulk of the market’s ADV – deliverable Spot, Forward and FX Swaps. Deliverable OTC FX clearing will become a reality in 2018 though, as we are one of two major CCPs currently finalising a deliverable FX clearing service, with the Deutsche Boerse Group’s Eurex Clearing service being the only one focused on letting you clear FX Spot, Forward, FX Swap, alongside cross currency swaps.

Once you have determined the position is going to be cleared, then your focus should be whether listed or OTC products give you the best route to get that position into the clearing house, considering all liquidity available: in the exchange orderbook and off-book – exactly the model 360T has with support for OTC alongside exchange listed FX products.

Well that’s clear – the customer gets the choice of using an OTC or exchange FX product, and accessing those exchange products on or off the exchange orderbook, but surely the problem with listed FX remains – the products are not a particularly good fit for OTC users?

The uptake of FX futures will be helped by next generation products that evolve FX futures from the US contracts with a small number of infrequent value dates, to something closer resembling the flexibility of OTC products.

We do have classic shaped FX futures contracts, albeit with OTC characteristics like having the currency pair quoted the right way around for OTC users, but a perfect example of next generation FX is the Eurex Rolling Spot Future. This is the simplest way to get FX spot exposure into the CCP, using an exchange listed product designed with a focus on removing incumbent costs in OTC rolls, with multiple liquidity providers considering the exchange orderbook and also how they can use the 360T block and EFP functionality to increase their distribution.

With all of these points aligning, the future of FX is here. Giving the customer true choice of product, execution type, and credit/clearing model so they can exploit the benefits that clearing can bring is certainly a challenge, but all of the foundations are already there for this client choice to become a reality in 2018 within 360T and the Deutsche Boerse Group.

http://www.360t.com

https://marketvoice.fia.org/issues/2017-12/cme-vs-lch-take-twoCME vs. LCH: Take Two

CME reinvigorates NDF clearing service in battle with LCH’s ForexClear

By

Nicola Tavendale

CME Group is making another run at the OTC FX market. The Chicago-based market operator recently unveiled an agreement with seven leading liquidity providers to begin using its clearing service for non-deliverable forwards and redoubled its efforts to promote the capital efficiencies that clearing can provide for FX traders. But with LCH currently dominating NDF clearing, is there really enough demand for the CME solution?

Over the last two years, NDF clearing has exploded as margin requirements for uncleared derivatives have come into effect around the world. Banks seeking to avoid those margin requirements have mainly turned to LCH’s ForexClear service, which provides clearing for NDFs in 12 emerging market currencies as well as several G-10 currencies. The service has 30 clearing members and has signed up an additional 3,000 client accounts this year alone. In the third quarter, the London-based clearinghouse processed NDFs worth $1.5 trillion in notional value, up more than 400% from the third quarter of 2016.

NDF Clearing Surges
Monthly Notional Value Cleared at LCH (Billions USD)

NoteMonthly clearing volumes include a small amount of NDFs in major currencies such as EUR, GBP, JPY and CHF. These NDFs make up less than 0.1% of total NDF clearing volume.
Source: LCH 

Virtually all interdealer activity resides on the LCH platform, explained John O’Hara, Americas head of prime brokerage and clearing at Société Générale Corporate and Investment Banking. But he said there is demand for a CME solution as well. One reason is the potential synergy with CME’s well-established foreign exchange futures market, which boasts more than $91 billion in average daily volume and more than $260 billion in open interest. “People gravitate toward what is most familiar to them, and for those actively clearing futures on CME, OTC FX clearing is a natural progression,” O’Hara explained.

CME has offered NDF clearing for several years but with minimal success. As of early December, across the 12 emerging market NDFs that CME clears, the only one with any activity was the Colombian peso NDF. The open interest in all of the others was exactly zero.

CME sees an opportunity for a second chance, however. So far most of the NDF clearing has been for interbank trades, but fund managers and other buyside institutions are poised to take up clearing as margin requirements for uncleared derivatives come into effect. CME is hoping that it can capture a share of this business by offering a clearing solution that combines OTC FX products with listed futures and options. Portfolio margining of OTC FX NDFs and listed FX futures is not available yet, but CME is working on getting regulatory approval and is hoping to bring that live in 2018.

Getting Market Makers on Board

The deeper challenge is pricing. Market sources said because ForexClear has been so widely adopted, liquidity in NDFs that are cleared at LCH are quoted with a tighter bid-ask spread than NDFs cleared at CME. CME is hoping to address that issue with its November announcement that seven leading NDF liquidity providers intend to start clearing with the service by the end of the first quarter of 2018. The seven liquidity providers are BBVA, Citi, Itau Unibanco, NatWest Markets, Santander, Standard Chartered and XTX Markets.

It is no accident that three of the liquidity providers—BBVA, Itau Unibanco, and Santander—are specialists in Latin American markets. Many of the most heavily traded NDFs are based on Latin currencies such as the Brazilian real and the Colombian peso. The other big center for NDFs is in Asia. That is one of the strengths of Standard Chartered, one of the top liquidity providers in Asian forex markets.

XTX is the only one of the seven that is not a bank, but the London-based electronic trading firm has emerged over the last three years as a major liquidity providers in the FX market. In last year’s Euromoney survey, which calculates market share across the top forex market-makers, XTX took third place in electronic spot trading in last year’s Euromoney survey of market share across the top FX market makers, and first place in this year’s FX Week awards for best liquidity provider.

All Under One Roof

CME also argues that its solution has a structural advantage. At LCH, the ForexClear service has its own default fund that is separate from its clearing services for other asset classes such as interest rate swaps. At CME, NDFs are under the same umbrella as a range of related products, including listed FX futures and options as well as interest rate swaps. That opens the door for margin offsets that LCH cannot offer. For example, CME estimates that the margin offsets between NDFs and non-deliverable interest rate swaps denominated in currencies such as the Brazilian real and the Korean won could go as high as 51%. The single default fund structure also offers capital savings for clearing firms. Rather than having to commit their capital to multiple default funds, the clearing firms only need to make one commitment that covers all the asset classes that they clear.

“Our NDF clearing solution leverages the same guaranty fund as the entire CME Group-listed futures and options complex, enabling material capital savings for our NDF clearing members and lower fees for customers clearing via an FCM,” Sean Tully, CME’s senior managing director of financials and OTC products, said in November when the agreement with the seven liquidity providers was announced.

Buyside Interest on the Rise

One of the key drivers behind the rise in demand for NDF clearing is the implementation of uncleared margin rules, which are still in the early stages of being phased in. Paddy Boyle, global head of ForexClear, explained that bilateral initial margin was initially required from all participants with at least $3 trillion of notional outstanding. That limit has now fallen to $2.25 trillion and will continue to fall to lower and lower thresholds. By September 2020, nearly all market participants will be subject to the rules.

“When we reach the final threshold in 2020, NDFs that are bilaterally traded and uncleared will become significantly more expensive and will provide all types of institutions with obvious greater incentive to clear,” Boyle said. Although most buyside firms are not yet subject to the margin requirements, Boyle said there is a “small but active group” of buyside firms voluntarily clearing NDFs at LCH now. “We expect buy-side clearing to grow substantially over the next few years, particularly as most buy-side firms will be caught as the thresholds continue to fall in 2019 and 2020,” he added.

“We expect buy-side clearing to grow substantially over the next few years, particularly as most buy-side firms will be caught as the thresholds continue to fall in 2019 and 2020.”

– Paddy Boyle, LCH

Basu Choudhury, head of business intelligence at NEX Traiana, also predicted that the buy side will soon have to start clearing more. Choudhury, who worked at ForexClear before joining Traiana in August 2016, explained that the first two waves of margin rules created an upturn in demand from tier one and tier two banks for NDF clearing. “Come January 2018, buy-side firms globally will also start to be impacted, so what CME are looking to do on the NDF side makes sense,” he said.

There is an added attraction for mutual funds in the U.S., according to SocGen’s O’Hara. “Since these fund structures have leverage and cash retention requirements measured on a gross notional basis when trading deliverable forwards, they have been seeking ways to ensure that there is no chance of delivery so their exposure can be assessed purely on a mark-to-market basis,” he explained. Since the CCPs have a mechanism wherein they can disallow delivery, they should be able to provide this relief, he said.

Convergence Play

Bringing liquidity providers on board is only one part of a renewed focus on the OTC FX market at CME. The company also is preparing to roll out a new service in the first quarter that will give OTC market participants better access to the liquidity in CME’s FX futures. Starting on Feb. 18, CME’s Globex electronic trading platform will support a central limit order book for trades that track the basis between spot FX and FX futures. This service, called FX Link, will enable the trading of an OTC spot FX contract and an FX futures contract via a single spread trade.

CME is partnering with Citi, one of the largest liquidity providers in the FX market, to act as central prime broker for the spot FX transactions resulting from the spread. The benefit of this arrangement, according to CME, is that it will allow participants to tap into their existing OTC FX interbank credit relationships and the established OTC FX prime brokerage network.

“By strengthening the integration between futures and the OTC FX marketplace, CME FX Link will enhance access to our deeply liquid FX futures market,” Paul Houston, CME’s global head of FX products, said in September when the initiative was announced. “OTC FX market participants will benefit from the capital and regulatory advantages of listed futures as well as optimizing credit lines through facing a central counterparty.”

“There will continue to be a convergence of sorts as OTC becomes more futures-like and futures assume some characteristics of OTC.”

– John O’Hara, Société Générale

In addition, both CME and ForexClear are preparing to launch OTC FX options clearing. CME said it is working with major FX options dealers to deliver a cash-settled clearing solution later this year, with the expectation of volumes beginning in early 2018. In contrast, ForexClear’s solution will offer physical settlement of OTC FX options in partnership with CLS, the widely used settlement service. ForexClear is currently seeking regulatory approval and plans to start by offering clearing in eight major currency pairs.

SocGen’s O’Hara explained that the options market has historically been characterized by physical settlement and many firms’ operational infrastructures have been built with this in mind. CME’s view, however, is that physical-settlement had become the standard simply as a consequence of how the market evolved and that cash settled would be the norm if it were starting today.

Ultimately the FX market is big enough to support both clearinghouses, according to Choudhury. “In IRS clearing we saw the buyside use CME initially while big dealers used LCH and it will be interesting to see if the same occurs with FX clearing,” he said. “CME do offer risk offsets between FX futures and OTC FX. For the buyside this may be attractive due to arbitrage opportunities, but dealers may prefer the LCH model due to larger netting pool.”

O’Hara commented that all of these moves are part of a larger trend that is blurring the lines between different sectors of the FX marketplace. “There will continue to be a convergence of sorts as OTC becomes more futures-like and futures assume some characteristics of OTC,” he said.

Other Topics

  • CME NDFs
  • Algorithmic Trading
  • High Frequency Trading
  • Global Code for FX Transactions

 

 

 

 

Please see my related posts

Understanding Global OTC Foreign Exchange (FX) Market

Key Sources of Research

Foreign exchange liquidity in the Americas

https://www.bis.org/publ/bppdf/bispap90.pdf

High-frequency trading in the foreign exchange market

https://www.bis.org/publ/mktc05.htm

 

Monitoring of fast-paced electronic markets

https://www.bis.org/publ/mktc10.htm

Click to access mktc10.pdf

Liquidity Provision in the Interbank Foreign Exchange Market

Frederick Van Gysegem

2013

 

Click to access 4197291.pdf

 

 

 

The Retail FX Trader: Rising Above Random

Christopher J. Davison

Nottingham Trent University, UK

February 4th 2016

 

Click to access 5881_Davison.pdf

 

 

 

 

The Evolution of Foreign Exchange Markets in the Context of Global Crisis

Mariana Trandafir1, Georgeta Dragomir2

 

Click to access 045cXL4244.pdf

 

 

 

Liquidity in FX spot and forward markets∗

Ingomar Krohn† Vladyslav Sushko‡

First draft: November 2017

Click to access 28-krohn-liquidity-in-fx-spot-and-forward-markets.pdf

 

Click to access GRU%232017-019%20Krohn%20Sushko.pdf

 

 

 

Essays on the FX Market Microstructure

 

https://biblio.ugent.be/publication/8541119/file/8541128

FX Spot and Swap Market Liquidity and the Effects of Window Dressing

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3092248

 

 

 

 

Foreign Exchange Market: Institutional Structure, Regulation, and Policy Implications

Fei Su1,*, Jun Zhao

 

Click to access jfe-5-5-1.pdf

http://pubs.sciepub.com/jfe/5/5/1/index.html

 

 

 

Trading Too Expensively in the FX Market? Empirical Evidence on Liquidity from an Aggregator

 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3208229&download=yes

 

 

 

Development and Functioning of FX Markets in Asia and the Pacific1

Richard M. Levich2
NYU Stern School of Business and NBER

Frank Packer3
Bank for International Settlements

Click to access L-Packer.pdf

 

 

 

Settlement Risk in the Global FX Market: How Much Remains?

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2827530&download=yes

The Retail Spot Foreign Exchange Market Structure and Participants

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2753823

 

 

 

FX MARKET METRICS: NEW FINDINGS BASED ON CLS BANK SETTLEMENT DATA

Joel Hasbrouck Richard M. Levich
March 2017

Click to access w23206.pdf

 

 

The flows of the Pacific: Asian foreign exchange markets through tranquility and turbulence

Dagfinn Rime and Hans Jørgen Tranvåg

 

https://brage.bibsys.no/xmlui/bitstream/handle/11250/2496837/wp_2012_1.pdf?sequence=1

 

 

 

FX counterparty risk and trading activity in currency forward and futures markets☆

Richard M. Levich

https://onlinelibrary.wiley.com/doi/pdf/10.1016/j.rfe.2012.06.004

 

 

 

Downsized FX markets: causes and implications

 

Click to access dfc8c7fd137a4927bd1a910ddb7650aeb4d3.pdf

 

 

 

The Asia Pacific FX Markets: Opportunities for Growth

KPMG

 

Click to access the-asia-pacific-fx-markets.pdf

 

 

 

Foreign exchange market structure, players and evolution

Michael R. King, Carol Osler and Dagfinn Rime

 

Click to access Rime-2.pdf

 

 

 

Foreign exchange trading and settlement: Past and present

Click to access cflfebruary2006-223-pdf.pdf

 

 

The foreign exchange and derivatives markets in Hong Kong

 

Click to access fa.pdf

 

 

Developments in Foreign Exchange and OTC Derivatives Markets

Megan Garner, Anna Nitschke and David Xu

 

Click to access rba-bulletin-2016-12-developments-in-foreign-exchange-and-otc-derivatives-markets.pdf

 

 

What’s behind the BIS Triennial Foreign Exchange Survey in 2016:Waning Risk Appetite and Expanding RMB Transactions

Kikuko Takeda
Senior Economist

 

Click to access NL2017No_2_e.pdf

A set of global principles of good practice in the foreign exchange market

 

Click to access fx_global.pdf

 

 

Cleared OTC FX

Click to access otc-fx-clearing.pdf

Click to access coupon-blending-for-ndfs.pdf

 

 

The spillover of money market turbulence to FX swap and cross-currency swap markets1

 

Click to access r_qt0803h.pdf

 

 

The Foreign Exchange Market and Central Counterparties

Mark Manning, Alex Heath and James Whitelaw*

 

Click to access bu-0310-8.pdf

 

 

 

Foreign Exchange Swaps and Forwards: Product Overview

 

Click to access FXC_Letter_113010.pdf

 

 

 

 

DAT consultation response – Incentives to centrally clear over-the-counter (OTC) derivatives

 

Click to access GFMA-Global-Foreign-Exchange-Division.pdf

360t.com

Cross Border/Offshore Payment, Clearing, and Settlement Systems -Update October 2019

Cross Border Payment, Clearing, and Settlement Systems -Update October 2019

 

There have been several new developments in Cross Border Payments Solutions landscape.

  • Interbank Cross Border Payments
  • Retail Cross Border Payments

 

Interbank Payments

  • Ripple
  • SWIFT
  • SWIFT GPI
  • JPMCoin
  • IBM Blockchain World Wire {BWW}

 

RIPPLE

From {https://digital.hbs.edu/platform-digit/submission/ripple-the-disruptor-to-the-forty-years-old-cross-border-payment-system/}

Cross-border payments today are inefficient, expensive and opaque.

The Global Interbank Financial Telecommunication Company (SWIFT) established in 1973 is still the most widely used method to send cross-border payment using the transmission of financial messages via the international SWIFTNet network.

However, the SWIFT financial messages do not hold accounts for its members nor make any form of clearing or settlement. It essentially only sends payment orders which need to be settled by the correspondent account that the institution has with each other. For this reason, each financial institution needs to have a banking relationship to exchange banking transactions.

This is why it requires 6 players linked up – payer, payer’s bank, payer’s bank’s correspondent, beneficiary bank’s correspondent, beneficiary bank, beneficiary to complete cross-border payments.

[1]

There are many obvious drawbacks of such system:

  • Cross-border payments can be expensive and sometimes even charged a percentage fees
  • Extra fees such as “lifting fees” or correspondent banking fees by intermediary banks are common
  • Bank keep the money for extra time and delay the payout “float money theft”
  • Exchange rate can have big spread

The high processing costs, lengthy settlement times and a poor customer experience prevents many new usage scenarios such as on-demand, low-value cross-border payment or mobile wallets. It is estimated that $1.6T per year for all parties in the ecosystem has spent yet unable to meet today’s cross-border payment need[2].

Ripple Labs (formerly OpenCoin) launched in 2012 with a mission to build a cross-border, interbank payment and settlement network using the concepts behind bitcoin. Ripple offers sub-second cross-border payments with automated best pricing from its network. As payments are nearly instant, it helps to remove the credit and liquidity risk from the process, lowering overall costs considerably.

 How is it done?

The core of its solution is RippleNet, a single, global network of banks that send and receive payments via Ripple’s distributed financial technology — providing real-time messaging, clearing and settlement of transactions.

RippleNet utilizes a subset of blockchain technology used in bitcoin. It uses the consensual validation of encrypted hashes to secure the messages across the Ripple network but does not hold the ledger, unlike bitcoin. Ripple names this open, neural protocol Interledger Protocol (ILP). ILP allows Ripple to connect existing bank ledgers, similarly to how banks connect their core system to the SWIFT network.

 

SWIFT GPI

From https://www.bellin.com/blog/swift-gpi-transparent-cross-border-payments/

Challenges in cross-border payments

Cross-border payments usually pass through several banks until the funds have been transferred from the payer to the account of the beneficiary. This is referred to as correspondent banking. This results in four obstacles that are virtually insurmountable for treasurers as things stand today:

1)   Time: Traditional cross-border payment orders can take several days from being released to being credited – way too long for efficient cash management.

2)   Transparency: Several correspondent banks can act as intermediaries between the bank initiating the payment and the beneficiary bank – an impenetrable banking jungle that causes treasurers sleepless nights for security and compliance reasons.

3)   Tracking: Today, treasurers neither know where a specific payment is located nor when it will be credited to the beneficiary – an incalculable business risk and a situation that often leads to time-consuming queries, trying to chase a payment.

4)   Remittance data: Remittance data is often altered somewhere along the line or information is lost. Sometimes the amount eventually credited to the account does not match the initial payment order because correspondent banks have deducted fees, resulting in a tedious reconciliation process once the money has arrived.

SWIFT global payments innovation – SWIFT gpi

In January 2017, SWIFT introduced the gpi Service that can be used to process global payments in a fast and traceable manner. The objective is for every one of the around 10,000 SWIFT Network banks to be able to offer money transfers within 24 hours with continuous end-to-end tracking and complete transparency along the entire payment chain by the end of 2020. This transparency and efficiency is made possible by using a specific gpi reference, the Unique End-to-End Transaction Reference UETR.

SWIFT GPI Instant Payment Cross Border

How the Unique End-to-End Transaction Reference (UETR) works 

You can compare the UETR to the tracking number of a parcel: The sender issues a unique, unalterable reference that shows you where the order is located at any one time. This reference ensures complete transparency as well as fully digitized and therefore speedy processing. In addition, the sender is automatically notified of any payment status changes. Conventional transfers often drop off the radar for quite some time, and you’re left wondering where your money has gone, not to mention the effort it will take you to retrace and reconcile afterwards.Conversely, gpi transfers generate an abundance of messages that keep you up to date on the status of your payment.

The same applies to the respective bank departments who can also trace corporate payments, enabling them to react to queries much faster. Some banks have integrated functionality in their online banking applications that enables corporate clients to track their gpi payments. Not a bad idea – the only downside is that most corporates use more than one bank for their international payments, which would mean checking several banking portals. This is why a bank-independent treasury management system such as tm5  is a much more elegant solution. All tracking and status information converges in one centralized hub, no matter how many banks are involved.

SWIFT gpi for Corporates (g4C) – new dynamic and transparency in treasury

In November 2018, SWIFT launched the SWIFT g4C project in order to enable corporates to directly benefit from the gpi technology. The objective was to offer corporates a solution for initiating gpi payment orders directly in their payments system. BELLIN was selected as one of the Early Adopters and was the first TMS provider with a client live on g4C. The pilot phase has been completed and the technology is fully integrated in the tm5 treasury management system and BELLIN’s SWIFT offering.

What does this mean for banks and companies?

The role of banks

Banks must be able to process certain information in order for it to be included in gpi payment orders. More than 280 financial institutions worldwide, including 49 of the TOP 50 banks, have agreed on a standardized SLA. With so many banks participating, communication is guaranteed. i.e. funds are transferred quickly from one bank to the next. By now, most banks have started processing cross-border payments as gpi payments.

The role of companies

The UETR is crucial for processing gpi payments. Companies that initiate their own payments, for example through a treasury management system integrated payment solution need to attach this reference to a payment order in line with SWIFT requirements or extend the format of a payment in the right place to include this information. The information transmitted by way of the UETR simplifies reconciliation and can be matched automatically, depending on the system.

BELLIN offers integrated SWIFT g4C technology

The BELLIN treasury management system, tm5, offers integrated SWIFT gpi technology. The system generates the unique and unalterable tracking reference UETR that is required for gpi payments. In addition, tm5 automatically processes incoming gpi status messages, enabling users to check the status of a payment at any time.

Corporates need a SWIFT BIC (Business Identifier Code) to make use of SWIFT g4C technology. They register their BIC for gpi for Corporates and connect financial institutions that offer g4C. All in all, SWIFT g4C unlocks completely new opportunities for automating treasury processes, in turn leading to efficiency gains and increased security.

How will gpi change treasury?

gpi is fast, creates transparency regarding fees and currencies and provides a wealth of information about the location of a payment and other aspects that simplify reconciliation. The SWIFT gpi initiative is clear evidence that corporate payments are moving towards real-time processing. In turn, this will change processes and the way treasurers work.

 

Retail Cross Border Payments Systems

 

Retail Payments/Transfers to India

{From ManiKarthik.com}

  • XOOM
  • Remitify
  • Remitly
  • Ria
  • Western Union
  • State Bank of India
  • Transfast
  • Transwise
  • ICICI Bank Money to India
  • WorldRemit
  • IndusInd Bank

 

Block Chain Based Cross Border Payment Systems

  • AIRFOX
  • CIRCLE PAY
  • ZCASH
  • RIPPLE
  • VEEM
  • IVY
  • GLUWA
  • STELLAR
  • ABRA

 

 

Top Cross Border Payment Companies

{https://www.ventureradar.com/keyword/Cross%20Border%20Payments}

  • Ripple
  • Seedrs
  • CurrencyFair
  • Transferwise
  • Payoneer
  • WorldRemit
  • Trustly Group
  • TransferGo
  • Raisin
  • Zooz
  • TransferMate Global Payments
  • Calastone
  • Airwallex
  • Hufsy
  • InstaReM
  • Caxton
  • Veem
  • nanoPay
  • Credorax
  • Transfast
  • wyre
  • Bitbound GmbH
  • Currency Transfer
  • Earthport PLC
  • Bitso
  • WB21
  • iSignthis
  • Currency Cloud
  • BitPay
  • MoneyTrans
  • Moni
  • Traxpay
  • Qwikwire
  • Streami Inc
  • PiP iT
  • Swych
  • HoneSend
  • Afrimarket
  • Fonmoney
  • Lala World
  • Flime
  • Smart Token Chain
  • TransferTo
  • EQ Global
  • Weeleo
  • SimbaPay
  • KUARIX
  • REMITWARE Payments
  • PingPong
  • Buckzy Payments

 

 

Please see my related posts:

Cross Border/Offshore Payment and Settlement Systems

Instant, Immediate, Real Time Retail Payment Systems (IIRT-RPS)

Evolving Networks of Regional RTGS Payment and Settlement Systems

Large Value (Wholesale) Payment and Settlement Systems around the Globe

Structure and Evolution of EFT Payment Networks in the USA, India, and China

Next Generation of B2C Retail Payment Systems

Understanding Global OTC Foreign Exchange (FX) Market

Sources of Research:

 

Ripple wants a piece of the global payment system

 

https://www.cnbc.com/2019/01/07/ripple-wants-a-piece-of-the-global-payment-system.html

How IBM Blockchain World Wire revolutionizes cross-border payments

IBM

https://www.ibm.com/downloads/cas/YW3W2JPZ

NAVIGATING A WORLD OF PAYMENT SOLUTIONS

WHAT YOU NEED TO KNOW FOR TODAY — AND TOMORROW

George H. Hoffman, CTP, CERTICM, Senior Vice President, Manager, International Advisory, PNC

Kacie V. Johnson, Assistant Vice President, International Advisor, PNC

 

Click to access navigating-payment-solutions.pdf

Siam Commercial Bank Of Thailand To Use Ripple For Cross-border Payments With Easy Pay App

Siam Commercial Bank Of Thailand To Use Ripple For Cross-border Payments With Easy Pay App

Ripple and Xendpay partner for cross-border payments

https://www.fxcompared.com/magazine/news/ripple-and-xendpay-partner-cross-border-payments

The Future Of Cross-Border Payments

FORBES

Click to access d173.pdf

 

A vision for the future of cross-border payments

McKinsey

 

https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/A%20vision%20for%20the%20future%20of%20cross%20border%20payments%20final/A-vision-for-the-future-of-cross-border-payments-web-final.ashx

FASTER, CHEAPER, SAFER: 9 COMPANIES USING BLOCKCHAIN PAYMENTS

https://builtin.com/blockchain/blockchain-payments

Global Payments 2020: Transformation and Convergence

BNY Mellon

Click to access global-payments-2020-transformation-and-convergence.pdf

 

Top 10 Trends in Payments 2018 : What You Need to Know

Cap Gemini 2018

Click to access payments-trends_2018.pdf

 

 

Strategies for Improving the U.S. Payment System

Federal Reserve Next Steps in the Payments Improvement Journey

Click to access other20170906a1.pdf

 

 

SWIFT gpi: A New Era in Treasury

Fast, transparent, traceable and system-integrated cross-border payments

https://www.bellin.com/blog/swift-gpi-transparent-cross-border-payments/

 

 

The Use of RMB in International Transactions:

-Background, Development and Prospect

Click to access pdf-rmb-JinZhongxia.pdf

 

 

 

The Cross-Border Payments Landscape

 

Click to access 9308A_1-2018-9-17.pdf

 

 

Swift to test real-time cross border payments in Europe

https://www.finextra.com/newsarticle/33852/swift-to-test-real-time-cross-border-payments-in-europe

 

 

Singtel’s cross-border payments system expands to Japan

The Via cross-border payments system has expanded into Japan thanks to a partnership with Netstars.

https://www.zdnet.com/article/singtels-cross-border-payments-system-expands-to-japan/

 

 

THE FUTURE OF CORRESPONDENT BANKINGCROSS BORDER PAYMENTS

RUTH WANDHÖFER

BARBARA CASU

PUBLICATION DATE: 10 OCTOBER 2018

 

Click to access SIWP-2017-001-The-Future-of-Correspondent-Banking_FINALv2.pdf

 

 

 

How are Asian FIs meeting the challenges and opportunities of cross-border payments?

A Survey on Trends in Cross-Border Payments in Asia Pacific

Click to access TAB_DEUTSCHE_BANK_WHITE_PAPER_-_FI_CROSS_BORDER_PAYMENT.pdf

 

 

 

The Inefficiencies of Cross-Border Payments: How Current Forces Are Shaping the Future

Written by Yoon S. Park, PHD & DBA, George Washington University

VISA

 

Click to access crossborder.pdf

 

 

 

CROSS-BORDER INTERBANK PAYMENT AND SETTLEMENTS

Emerging opportunities for digital transformation

 

Click to access Cross-Border-Interbank-Payments-and-Settlements.pdf

 

 

Global Payment Systems Survey (GPSS)

December 4, 2018
World Bank

https://www.worldbank.org/en/topic/financialinclusion/brief/gpss

 

 

 

Beijing creates its own global financial architecture as a tool for strategic rivalry

Govt of Canada

https://www.canada.ca/en/security-intelligence-service/corporate/publications/china-and-the-age-of-strategic-rivalry/beijing-creates-its-own-global-financial-architecture-as-a-tool-for-strategic-rivalry.html

 

 

 

SWIFT Vs. Ripple — The Importance of Speed in Cross-Border Payments

https://cointelegraph.com/news/swift-vs-ripple-the-importance-of-speed-in-cross-border-payments

 

 

Visa looks to speed up cross-border payments with new network launch

https://www.reuters.com/article/visa-payment/visa-looks-to-speed-up-cross-border-payments-with-new-network-launch-idUSL2N23H1NO

 

 

Cross-border Payment systems: SWIFT, RippleNet or BWW?

 

Cross-border Payment systems: SWIFT, RippleNet or BWW?

 

Rise of the yuan: China-based payment settlements jump 80%

Data shows Beijing attracting countries targeted by US sanctions

https://asia.nikkei.com/Business/Markets/Rise-of-the-yuan-China-based-payment-settlements-jump-80

 

 

 

http://www.cips.com.cn/cipsen/7052/7057/index.html

https://www.treasury-management.com/article/1/355/2929/cips-chinas-hybrid-net-settlement-clearing-system.html

 

 

SWIFT’s Battle For International Payments

Forbes

https://www.forbes.com/sites/francescoppola/2019/07/16/swifts-battle-for-international-payments/#64699a4e758e

 

 

EU Cross Border Payments: An evolving concept

 

Click to access lu-eu-cross-border-payments.pdf

 

 

 

INTERNATIONAL PAYMENTS IN A DIGITAL WORLD

YET ANOTHER BANKING BUSINESS THREATENED BY DIGITALIZATION

Click to access accenture-international-payments-digital-world-international-payments-digital-world.pdf

 

 

 

SWIFT gpi Time for action

Deutche Bank

 

Click to access Deutsche_Bank_SWIFT_gpi_White_Paper_December2017.pdf

 

 

 

B2B Payments and Fintech Guide 2019

Innovations in the Way Businesses Transact

 

Click to access B2B%20Payments%20and%20Fintech%20Guide%202019%20-%20Innovations%20in%20the%20Way%20Businesses%20Transact.pdf

 

 

Paying across borders – Can distributed ledgers bring us closer together?

  • RODRIGO MEJIA-RICART
  • CAMILO TELLEZ
  • MARCO NICOLI

MARCH 26, 2019

https://blogs.worldbank.org/psd/paying-across-borders-can-distributed-ledgers-bring-us-closer-together

 

 

Reinventing Payments

In An Era of Modernization

 

Click to access reinventing-payments-in-an-era-of-modernization.pdf

 

 

 

WORLD PAYMENTSREPORT

2018

 

Click to access World-Payments-Report-2018.pdf

 

 

 

Fundamentals of Global Payment Systems and Practices

Click to access Fundamentals_of_Payment_Systems.pdf

 

 

 

Global Payments 2018

REIMAGINING THE CUSTOMER EXPERIENCE

 

BCG

Click to access BCG-Global-Payments-2018-Oct-2018_tcm9-205095.pdf

 

 

 

Cross-Border Banking in Europe: Implications for Financial Stability and Macroeconomic Policies

CEPR

 

Click to access GenevaP223.pdf

 

 

 

Cross-Border Settlement Systems: Blockchain Models Involving Central Bank Money

Xiaohang Zhao, Haici Zhang, Kevin Rutter, Clark Thompson, Clemens Wan

Click to access CrossBorder_Settlement_Central_Bank_Money_R3-1.pdf

 

Credit Chains and Production Networks

Credit Chains and Production Networks

There are three kind of flows in a Supply Chain

  • Goods
  • Information
  • Financial

 

Credit Terms in a Supplier Buyer contracts determine payment delays which accumulate in current accounts of a Firm.

  • Account Receivables
  • Account Payables

 

Credit Relations

  • Bank to Bank
  • Bank to Firm
  • Firm to Firm

Dyad of Credit Relations

  • Supplier – Buyer

 

Triad of Credit Relations

  • Supplier – Bank – Buyer

Sources of Systemic Risk

  • Failure of a Firm and its impact on Suppliers and Customers (Flow of Goods)
  • Failure of a Bank and its impact on Trade Credit
  • Credit Contraction due to de-risking by the Banks
  • Decline in Correspondent Banking relations and its impact on Trade Finance

 

From Credit Chains and Sectoral Co-movement: Does the Use of Trade
Credit Amplify Sectoral Shocks?

Trade credit is an important source of short-term financing for firms, not only in the U.S., as documented by Petersen and Rajan (1997), but also around the World. For instance, accounts payables are larger than short-term debt in 60 percent of the countries covered by Worldscope. Also, across the world most firms simultaneously receive credit from their suppliers and grant it to their customers, which tend to be concentrated on specific sectors.  These characteristics of trade credit financing have led some authors to propose it as a mechanism for the propagation and amplification of idiosyncratic shocks. The intuition behind the mechanism is straightforward; a firm that faces a default by its customers may run into liquidity problems that force it to default to its own suppliers. Therefore, in a network of firms that borrow from each other, a temporary shock to the liquidity of some firms may cause a chain reaction in which other firms also get in financial difficulties, thus resulting in a large and persistent decline in aggregate activity. This idea was first formalized by Kiyotaki and Moore (1997) in a partial equilibrium setting, and has been recently extended to a general equilibrium environment by Cardoso-Lecourtois (2004), and Boissay (2006) who have also provided evidence of the potential quantitative importance of the mechanism by calibrating their models to the cases of Mexico and the U.S., respectively.

From Ontology of Bankruptcy Diffusion through Trade Credit
Channel

A supply network is a network of entities interacting to transform raw material into finished product for customers. Since interdependencies among supply network members on material, information, and finance are becoming increasingly intensive, financial status of one firm not only depends on its own management, but also on the performance and behaviours of other members. Therefore, understanding the financial flows variability and the material interactions is a key to quantify the risk of a firm. Due to the complex structure and dynamic interactions of modern supply networks, there are some difficulties faced by pure analysis approaches in analyzing financial status of the supply network members and the high degree of nonlinear interactions between them. Mathematical and operation research models usually do not function very well for this kind of financial decision making. These models always start with many assumptions and have difficulties modeling such complex systems that include many entities, relationships, features, parameters, and constraints. In addition, traditional modeling and analysis tools lack the ability to predict the impact of a specific event on the performance of the entire supply network.  Current financial data analysis with large volumes of structure data cannot offer the full picture and intrinsic insights into the risk nature of a company. Motivated by the literature gap in risk monitoring in investment background and limitations of analysis approaches for handling bankruptcy contagion phenomenon, we propose an ontological approach to present a formal, shared conceptualization of this domain knowledge.

From Inter-Firm Trade Finance in Times of Crisis

The severe recession that is hitting the global economy, with very low or even negative growth rates, has caused widespread contractions in international trade, both in developed and developing countries. World Trade Organization (WTO) has forecast that exports will decline by roughly 9% in volume terms in 2009 due to the collapse in global demand brought on by the biggest economic downturn in decades. The contraction in developed countries will be particularly severe with exports falling by 10%. In developing countries, which account for one-third of world trade, exports will shrink by some 2% to 3% in 2009.

The contraction in international trade has been accompanied by a sharp decline in the availability of trade finance. This decline is only partly explained by the contraction in demand: according to a BAFT (Banker’s Association for Trade and Finance) and International Monetary Fund (IMF) joint survey (2009), flows of trade finance to developed countries have fallen by 6% relative to the previous year, more than the reduction in trade flows, suggesting that part of the fall reflects a disruption of financial intermediation. The contraction in value of trade finance has also been accompanied by a sharp increase in its price. Fear that the decline in trade finance and the increase in its cost would accelerate the slowdown of world trade has triggered a number of government initiatives in support of trade finance (Chauffour and Farole,2009).

The situation is especially worrisome for firms operating in developing countries which rely heavily on trade finance to support both their exports and imports.1 With a restricted access to financing and an increased cost of financing, these firms may find difficulties in maintaining their production and trade activities.

 

Please see my related posts:

Supply Chain Finance (SCF) / Financial Supply Chain Management (F-SCM)

Production Chain Length and Boundary Crossings in Global Value Chains

Intra Industry Trade and International Production and Distribution Networks

Understanding Trade in Intermediate Goods

Trends in Intra Firm Trade of USA

Production and Distribution Planning : Strategic, Global, and Integrated

Development of Global Trade and Production Accounts: UN SEIGA Initiative

The Dollar Shortage, Again! in International Wholesale Money Markets

FDI vs Outsourcing: Extending Boundaries or Extending Network Chains of Firms

The Collapse of Global Trade during Global Financial Crisis of 2008-2009

Understanding Global Value Chains – G20/OECD/WB Initiative

Economics of Trade Finance

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Oscillations and Amplifications in Demand-Supply Network Chains

Contagion in Financial (Balance sheets) Networks

 

Key Sources of Research:

 

LIQUIDITY, BUSINESS CYCLES, AND MONETARY POLICY

Nobuhiro Kiyotaki
London School of Economics

John Moore
Edinburgh University and London School of Economics

27 November 2001

Click to access kimo.pdf

 

 

Credit Cycles

Nobuhiro Kiyotaki; John Moore

The Journal of Political Economy, Vol. 105, No. 2.

(Apr., 1997),

Click to access km.pdf

 

Credit chains

Nobuhiro Kiyotaki (Princeton University)

John Moore (University of Edinburgh)

Date January 1997

Click to access id118_esedps.pdf

Click to access Kiyotaki_CreditChains.pdf

 

 

Credit and Business Cycles

N Kiyotaki

1998

Click to access Credit-and-BusinessCycles.pdf

 

 

Inter-Enterprise Credit and Adjustment  During Financial Crises: The Role of Firm Size

Fabrizio Coricelli

Marco Frigerio

July, 2 2016

Click to access Coricelli%2C%20Fabrizio%20paper.pdf

 

 

Credit chains and bankruptcy propagation in production networks

Stefano Battiston, Domenico Delli Gatti, Mauro Gallegati,
Bruce Greenwald, Joseph E. Stiglitz

2007

Click to access 2007_Credit_Chains.pdf

 

 

Trade Finance in Crisis : Market Adjustment or Market Failure ?

Jean-Pierre Chauffour

Thomas Farole

Date Written: July 1, 2009

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1437955

Resaleable debt and systemic risk

Jason Roderick Donaldson , Eva Micheler

2018

Click to access Donaldson-Micheler-Resaleable_Debt.pdf

 

Supply chains and credit-market shocks: Some implications for emerging markets,

Jinjarak, Yothin (2013)

ADBI Working Paper Series, No. 443

Click to access 770887406.pdf

 

 

Financial Amplification Mechanisms and the Federal Reserve’s Supply of Liquidity during the Crisis

Asani Sarkar
Jeffrey Shrader

Staff Report no. 431
February 2010

Click to access sr431.pdf

 

 

Aggregate Fluctuations and the Role of Trade Credit

Lin Shao

2017

Click to access swp2017-37.pdf

 

 

Supply Chain Disruptions and Trade Credit

LU Yi OGURA Yoshiaki

TODO Yasuyuki ZHU Lianming

2017

Click to access 17e054.pdf

 

 

Credit Shocks and Aggregate Fluctuations in  an Economy with Production Heterogeneity

Aubhik Khan

Julia K. Thomas

September 2013

Click to access KhanThomasDCTsept2013.pdf

 

 

Financial Frictions in Production Networks

Saki Bigio

Jennifer La’O

February 7, 2013

Click to access FinancialFrictionsNetworks.pdf

 

Working Paper No. 67, April 2016

Click to access WP-67.pdf

 

 

The Origins of Aggregate Fluctuations in a Credit Network Economy

Levent Altinoglu

October 16, 2016

Click to access Altinoglu_JMP_CurrentVersion.pdf

September 30, 2015

Click to access fcb800d01a5b8dce9ed13a4a200bf51f6fed.pdf

 

Consolidated Bibliography

WTO

Click to access aid4tradesupplychain13_biblio_e.pdf

 

 

Propagation of Financial Shocks in an Input-Output Economy with Trade and Financial Linkages of Firms

Shaowen Luo

December 4, 2015

Click to access Luo.pdf

 

FDI, Trade Credit, and Transmission of Global Liquidity Shocks:
Evidence from Chinese Manufacturing Firms

Shu Lin and Haichun Ye

Click to access Lin–Ye_paper.pdf

 

 

Trade Credit, Financing Structure and Growth

Junjie Xia

October 27, 2016

Click to access jmp_oct16.pdf

 

The impact of corporate distress along the supply chain: evidences from United
States

Lucia Gibilaro

Gianluca Mattarocci

Click to access EFMA2017_0526_fullpaper.pdf

 

 

Does credit crunch investments down?
New evidence on the real eects of the bank-lending channel

Federico Cinganoz Francesco Manaresix Enrico Settex

December 2013

Click to access Credit_crunch_investments.pdf

 

Interwoven Lending, Uncertainty, and Liquidity Hoarding

Adam Zawadowski

December 13, 2017

Click to access credit.pdf

 

 

Trade credit: Elusive insurance of rm growth

DENNIS BAMS, JAAP BOS and MAGDALENA PISA*

October 5, 2016

Click to access Trade%20credit%20Elusive%20insurance%20of%20firm%20growth%202016.pdf

 

 

Chain Reactions, Trade Credit and the Business Cycle

Miguel Cardoso-Lecourtois

Click to access up.4593.1075462930.pdf

 

From production networks to geographical economics.

Gérard Weisbuch, Stefano Battiston.

Journal ofEconomic Behavior and Organization, Elsevier, 2007, 64 (3- 4), pp.448

https://hal.archives-ouvertes.fr/hal-00531863/document

 

 

Production networks and failure avalanches

Gerard Weisbuch
Stefano Battiston

March 5, 2018

Click to access 0507101.pdf

 

 

Self-organised patterns in production networks

Gerard Weisbuch

October 10, 2005

Click to access gwcomplexus.pdf

 

 

Networks : Propagation of Shocks over Economic Networks

Daron Acemoglu

July 22, 2014.

https://economics.mit.edu/files/9790

 

 

Debt-Rank Analysis of Financial Distress Propagation on a Production Network in Japan

FUJIWARA Yoshi
University of Hyogo
TERAI Masaaki
RIKEN
FUJITA Yuji
Turnstone Research Institute, Inc.
SOUMA Wataru
Nihon University

Click to access 16e046.pdf

 

 

Operational causes of bankruptcy propagation in supply chain

Zhongsheng Hua ⁎, Yanhong Sun 1, Xiaoyan Xu

2011

Click to access 48280.pdf

 

 

Propagation of Financial Shocks in an Input-Output Economy with Trade and Financial Linkages of Firms

Shaowen Luo
September 20, 2015

Click to access 10-02-15Luo.pdf

 

 

From Micro to Macro via Production Networks

Vasco M. Carvalho

Click to access carvalho_from_micro.pdf

 

 

Trade Credit and the  Propagation of Corporate Failure: An Empirical
Analysis

Tor Jacobson and Erik von Schedvin
August 2012

Click to access 723939764.pdf

 

CREDIT MARKET DISRUPTIONS AND LIQUIDITY SPILLOVER EFFECTS IN THE SUPPLY CHAIN

Anna M. Costello

August 8, 2017

Click to access costello-anna-acctgcamp2017_0.pdf

 

Modeling defaults of companies in multi-stage supply chain networks

Kamil J.Mizgier, StephanM.Wagner,, JanuszA.Holyst

2010

Click to access Mizgier_etal_InPress_Modeling_defaults_of.pdf

 

 

 

The origins of scale-free production networks

Stanislao Gualdizand Antoine Mandelx

June 28, 2015

Click to access Gualdi.pdf

 

 

Optimization of order policies in supply networks

S. GÄottlich¤ M. Hertyy C. Ringhoferz

August 18, 2008

Click to access FRG-2008-Ringhofer-Christian.FRG_Ringhofer_Orders080814.pdf

 

Financial Instability after Minsky: Heterogeneity, Agent Based Models and Credit
Networks

Domenico Delli Gatti

April 10, 2012

Click to access delli-gatti-domenico-berlin-paper.pdf

 

Measuring the Systemic Risk in Inter firm Transaction Networks

Makoto Hazama
And
Iichiro Uesugi

Click to access wp066.pdf

 

Systemic Risk Assessment in Complex Supply Networks

Anna Ledwoch, Alexandra Brintrup, J¨orn Mehnen, Ashutosh Tiwari

Click to access Ledwoch_etal_SJ_2016_Systemic_risk_assessment_in_complex_supply_networks.pdf

 

TRADE CREDIT DEFAULTS AND LIQUIDITY PROVISION BY FIRMS

Reint Gropp
Frédéric Boissay

2007

Click to access ecbwp753.pdf

 

The future of agent-based modelling.

Matteo Richiardi

Institute for New Economic Thinking and Nuffield College, Oxford, United Kingdom
Collegio Carlo Alberto, Moncalieri, Italy

This draft: June 2015

Click to access abmfuture-v12.pdf

 

 

Financially Constrained Fluctuations in an Evolving Network Economy

Domenico Delli Gatti
Mauro Gallegati
Bruce Greenwald
Alberto Russo
Joseph E. Stiglitz

Click to access DelliGatti%28presentation%29_ABM.pdf

 

 

Credit Chains and Sectoral Comovement: Does the Use of Trade Credit Amplify Sectoral Shocks?

Claudio Raddatz

The World Bank
March, 2007

Click to access Credit_chains_051707_withtables.pdf

 

 

Linkages and spillovers in global production networks: firm-level analysis of the Czech automotive industry

Petr Pavlinek

Pavla Žížalová

https://digitalcommons.unomaha.edu/cgi/viewcontent.cgi?article=1039&context=geoggeolfacpub

 

Ontology of Bankruptcy Diffusion through Trade Credit
Channel

Lin Cheng

Huaiqing Wang

Huaping Chen

Click to access JRPIT44.4.401.pdf

 

OPTIMAL ORDER AND DISTRIBUTION STRATEGIES IN PRODUCTION NETWORKS

Simone Gottlich, Michael Herty, and Christian Ringhofer

Click to access SpringerOpt10.pdf

 

Profitability, Trade Credit and Institutional Structure of Production

Michael Gofman
December 9, 2013

Click to access Supplier-Customer%20Network.pdf

 

The Economics of Information and Financial
Networks

Stefano Battiston
July 22, 2016

Click to access battiston2016information.pdf

 

Supply Chain Perspectives and Issues: A Literature Review

Albert Park
Gaurav Nayyar
Patrick Low

Click to access supply-chain-perspectives-and-issues.pdf

 

 

LIAISONS DANGEREUSES: INCREASING CONNECTIVITY, RISK SHARING, AND SYSTEMIC RISK

Stefano Battiston
Domenico Delli Gatti
Mauro Gallegati
Bruce C. Greenwald
Joseph E. Stiglitz

Click to access w15611.pdf

 

 

Inter-Firm Trade Finance in Times of Crisis

Anna Maria C. Menichini

Click to access WPS5112.pdf

 

 

Reducing the Probability of Bankruptcy Through Supply Chain Coordination

Xiaoyan Xu, Yanhong Sun, and Zhongsheng Hua

2010

Click to access 573eac9d08ae298602e6e77a.pdf

 

 

Pathways towards instability in financial networks

Marco Bardoscia, Stefano Battiston Fabio Caccioli & Guido Caldarelli

2017

Click to access bardoscia2017pathways-1.pdf

 

 

International Credit Supply Shocks

Ambrogio Cesa-Bianchiy Andrea Ferreroz Alessandro Rebuccix

June 16, 2017

https://www.bostonfed.org/-/media/Documents/events/2017/boston-policy-workshop/AlessandroRebucci.pdf?la=en

 

Risk Propagation through Payment Distortion in Supply Chains

Alejandro Serrano

Rogelio Oliva

Santiago Kraiselburd

Click to access 0e6d7dc9d4b4f6bcada884b71562791404ed.pdf

 

 

Payment Defaults and Interfirm Liquidity Provision

https://academic.oup.com/rof/article-abstract/17/6/1853/1591419

 

SYSTEMIC RISK: A SURVEY

BY OLIVIER DE BANDT
AND PHILIPP HARTMANN

November 2000

Click to access ecbwp0035.pdf

 

 

Risk Propagation in Supply Chains

Alejandro Serrano

Rogelio Oliva

Santiago Kraiselburd

Click to access f3278ab2a75ff11b0142fba19a4cf223805a.pdf

 

 

How Inventory Is (Should Be) Financed: Trade Credit in Supply Chains with Demand
Uncertainty and Costs of Financial Distress

Song (Alex) Yang, John R. Birge

Click to access YangBirge_trade%20credit.pdf

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2746645

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1734682

 

 

The Supply Chain Effects of Bankruptcy

S. Alex Yang

John R. Birge, Rodney P. Parker

Click to access 86a8667f24af2c6a5cd7eb52bbd12b39697b.pdf

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.715.5812&rep=rep1&type=pdf

 

Supply Chain Management: Supplier Financing Schemes and Inventory Strategies

Min Wang

Click to access Min_Wang_Dissertation.pdf

 

Foreign Investment and Supply Chains in Emerging Markets: Recurring Problems and Demonstrated Solutions

Theodore H. Moran

PIIE

2014

Click to access wp14-12.pdf

 

Improving cash flow using credit management
The outline case

Click to access cid_improving_cashflow_using_credit_mgm_Apr09.pdf.pdf

 

CREDIT CHAINS AND THE PROPAGATION OF
FINANCIAL DISTRESS

2006

by Frederic Boissay

Click to access ecbwp573.pdf

 

Exposure to international crises: trade vs. financial contagion

Everett Grant

2016

https://www.esrb.europa.eu/pub/pdf/wp/esrbwp30.en.pdf?7b7cc950c1a2286d395ed8489bfde5c7

 

 

Credit Contagion and Trade Credit Supply:
Evidence from Small Business Data in Japan

TSURUTA Daisuke

Click to access 07e043.pdf

 

 

The Price of Complexity in Financial Networks

Joseph Stiglitz

2017

Click to access The%20Price%20of%20Complexity%20in%20Financial%20Networks.pdf

 

 

The Price of Complexity in Financial Networks

S. Battiston

2017

Click to access 160913_slides_battison.pdf