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FinTech and market electronification
Technology is reshaping the way financial markets operate. FinTech, a term broadly used to describe innovation in financial services enabled by technology has attracted much attention among market participants, regulators and policy-makers alike.

ICMA’s engagement spans (i) primary markets, (ii) secondary markets, and (iii) repo and collateral markets, with a focus on market electronification ie the use of technology across the securities lifecycle. While the level of adoption of technology solutions varies in each of those areas, the advent of cutting edge technologies such as distributed ledger technology or artificial intelligence has the potential to impact market practice and market structure significantly.

FinTech and market electronification are addressed through ICMA’s various committees, working groups and work streams as well as through bilateral discussions with member firms and technology providers. ICMA seeks to mainstream relevant FinTech developments and market electronification through all of its initiatives, activities, and fora.

 
Cross-cutting:

The ICMA board subgroup on technology was established at the beginning of 2018 to provide further guidance on ICMA’s engagement on FinTech and market electronification. In line with ICMA’s mission statement to promote resilient and well-functioning international debt capital markets, the purpose of the board subgroup on technology is to help identify technology trends and consolidate ICMA’s cross-cutting engagement related to FinTech and market electronification by:
  • Providing guidance on ICMA’s engagement with the industry related to the topic;
  • Promoting best practice & common standards;
  • Fostering the discussion with all involved parties on technological developments impacting all segments of the debt capital markets infrastructure;
  • Helping inform ICMA members on technology trends and the potential of practical impact on international debt capital markets.
The current members of the ICMA board subgroup are:

Armin Peter (UBS, Chair of board subgroup), Jean-Marc Mercier (HSBC, Deputy chair of ICMA board), Juan Blasco (BBVA), and Mandy DeFilippo (Morgan Stanley, Chair of ICMA board).

Secretary to the ICMA board subgroup: Gabriel Callsen


Specialist:

The Electronic Trading Council (ETC) has been set up comprising buy-side heads of trading desks, sell-side senior traders or heads of market structure and/or electronic trading and senior representatives from trading venues and technology providers.

The ERCC Ops FinTech Working Group was set up in 2016 by members of the Operations Group (Ops) of the ICMA European Repo and Collateral Council.

ICMA has created a working group of sell-side members to help support the development of the Common Domain Model for bond and repo markets. The working group includes front office, middle/back office, IT and legal experts.




Contacts:

Gabriel Callsen
Director, Market Practice and Regulatory Policy
Direct line: +44 20 7213 0334

Rowan Varrall
Associate, Market Practice and Regulatory Policy
Direct line: +44 20 7213 0317
Resources:

ICMA primary markets technology mapping directory: ICMA has published the second edition of its comparative mapping of electronic primary bond markets solutions. The directory compares the key features and capabilities of 30 technology solutions that are available for a range of functions within the issuance process of debt securities.

ETP mapping directory: In light of the shift towards electronification, ICMA initially conducted a mapping exercise of electronic trading platforms (ETPs) and information networks in 2015. The ETP mapping directory, which was published as a result, has been reviewed since MiFID II/R entered into force on 3 January 2018. It provides a single source of information on currently over 40 infrastructure providers, covering all cash bond classes.

ICMA Repo trading technology directory: ICMA has conducted a mapping exercise of electronic repo trading platforms. The directory is intended to help market participants understand what execution venues are available for repo trading (D2D or D2C, for instance), product scope, as well as differences in trading protocols, clearing and collateral configurations. The directory also provides information on the venues’ regulatory status, market identifier codes (MIC) and additional services on offer such as regulatory reporting under SFTR.

ICMA Ops FinTech mapping directory: ICMA’s ERCC Ops FinTech Working Group (WG) initially published a mapping directory of over 80 technology solutions available for repo and cash bond operations in November 2017. The directory is being kept up-to-date on a regular basis and the latest version released in July 2019 has now grown to include over 125 solutions. The directory is divided into 10 categories including collateral management, exposure agreements and reconciliations.

ICMA Distributed Ledger Technology (DLT) Regulatory Directory: ICMA has conducted a mapping exercise on DLT regulatory guidance, legislative initiatives, as well as related strategy papers and recent publications in selected jurisdictions across Europe, North America, and Asia-Pacific. Its aim is to provide a sense of the direction of travel, anticipating future regulatory DLT guidance and legislative change, which will pave the way for broader adoption of DLT.

FinTech Glossary: An initiative of the ICMA Future Leaders to provide greater clarity around FinTech acronyms and terms.


Publications:

March 2020
ICMA response to EC consultation on an EU framework for markets in crypto-assets (security tokens)

January 2020
FinTech regulatory developments Q1 2020
DLT-related legislation and regulatory frameworks

October 2019
FinTech regulatory developments Q4 2019

July 2019
Big Data in securities markets
FinTech regulatory developments Q3 2019

April 2019
FinTech regulatory developments Q2 2019
Where is my blockchain bond?

January 2019
FinTech regulatory developments Q1 2019

October 2018
FinTech regulatory developments Q4 2018

September 2018
Regulatory approaches to Fintech and innovation in capital markets

July 2018
Electronification in primary bond markets
FinTech regulatory developments Q3 2018

April 2018
ICMA’s engagement on FinTech and market electronification
FinTech regulatory developments Q2 2018

October 2017
Market electronification and FinTech

July 2017
ICMA’s engagement on market electronification and FinTech
FinTech: Government bonds in Kenya

April 2017
FinTech, DLT and Regulation

January 2017
Bond trading market structure and the buy side

April 2016
Evolutionary change: The future of electronic trading of cash bonds in Europe

October 2015
An introductory Q&A on blockchain technology




Contacts:

Gabriel Callsen
Director, Market Practice and Regulatory Policy
Direct line: +44 20 7213 0334

Rowan Varrall
Associate, Market Practice and Regulatory Policy
Direct line: +44 20 7213 0317
Distributed Ledger Technology (DLT), often referred to as Blockchain, has stirred a lot of interest and enthusiasm across the financial industry. Although discussions are still at a very early stage, DLT is believed to have the potential to substantially change the way financial markets are operating today, promising important cost savings and efficiency gains in particular in the post-trade space. Regulators and law makers around the world, concerned with the regulatory implications of the technology, are increasingly joining the debate. This webpage aims to provide an overview of the most important contributions, focusing on key early regulatory initiatives in this space but also referencing some of the most important industry initiatives and selected other research on DLT. The aim is not to offer a comprehensive list of available sources on DLT but to limit the overview to the key initiatives. The list will be updated on an ongoing basis as the discussions on DLT are evolving and the impacts are becoming more clear.




Official sources

BIS (Committee on Payments and Market Infrastructures): Working Paper No 811 'Embedded supervision: how to build regulation into blockchain finance' (September 2019).

ECB: Potential use cases for innovative technologies in securities post-trading, ECB AMI-SeCo HSG FinTech TF, (January 2019).

ESMA: Report on The Distributed Ledger Technology Applied to Securities Markets (7 February 2017) following a Discussion Paper (published on 2 June 2016 for consultation). This follows up on an earlier Call for evidence on Investment using virtual currency or distributed ledger technology (published on 22 April 2015) and the responses received to that consultation.

European Commission Blockchain Observatory & Forum: Legal and regulatory framework of blockchains and smart contracts (September 2019).

European Commission Expert Group on Regulatory Obstacles to Financial Innovation (ROFIEG): 30 Recommendations on Regulation, Innovation and Finance (December 2019).

European Parliament: Distributed ledger technologies and blockchains: building trust with disintermediation resolution of 3 October 2018, 2017/2772(RSP).

FCA: Feedback Statement on Distributed ledger technology, FS17/4. (December 2017).

FINRA: Distributed Ledger Technology: Implications of Blockchain for the Securities Industry (January 2017).

FSB: Decentralised financial technologies – Report on financial stability, regulatory and governance implications (June 2019).

IOSCO: Research Report on Financial Technologies (February 2017).

ISO: Blockchain/DLT standards ISO/TR 23455:2019 (September 2019).

ITU: Technical Report FG DLT D4.1: Distributed ledger technology regulatory framework (August 2019)

UK Jurisdiction Taskforce: Legal statement on cryptoassets and smart contracts (November 2019).




Selected other research

SWIFT Institute: The Impact and Potential of Blockchain on the Securities Transaction Lifecycle (9 May 2016)




Some key industry initiatives

A multitude of industry initiatives are under way to develop use cases on DLT, among which several important collaborative cross-industry initiatives, including:

Post Trade Distributed Ledger group (PTDL): PTDL is a London-based industry group that aims to provide a forum where financial institutions can explore and share ideas about how DLT can transform the post-trade space. The membership is diverse and includes nearly 40 financial institutions and prominent market infrastructures.

Hyperledger Project: The Hyperledger initiative was launched in December 2015. The project is led by the Linux Foundation and involves both major financial institutions and large technology firms. The idea is to provide an environment to identify and address important features for a cross-industry open standard for distributed ledgers. Members include well-known blockchain start-ups such as the R3 Consortium (see below) and Digital Asset Holdings (DAH).

R3 Consortium: R3 is a New York based start-up which leads a consortium partnership with over 40 of the world's largest banks. It aims to provide a forum for the creation of common standards for the use of DLT in finance and create blockchain applications. Unlike the other two initiatives, R3 is a commercial venture.

A more detailed overview of industry initiatives is available here (financial news).




Contacts:

Alexander Westphal
Director, Market Practice and Regulatory Policy, Secretary to the ICMA European Repo and Collateral Council (ERCC)
Direct line: +44 20 7213 0333

Gabriel Callsen
Director, Market Practice and Regulatory Policy
Direct line: +44 20 7213 0334

Rowan Varrall
Associate, Market Practice and Regulatory Policy
Direct line: +44 20 7213 0317
Applications of distributed ledger technology, artificial intelligence/machine learning, big data analytics or cloud computing have significant potential to alter the lifecycle of bonds, from issuance, trading to settlement, and impact the functioning of financial markets. ICMA has produced a listing of new applications of fintech in bond markets taken from public sources, such as press announcements.

VIEW LISTING OF NEW FINTECH APPLICATIONS IN BOND MARKETS



Contacts:

Gabriel Callsen
Director, Market Practice and Regulatory Policy
Direct line: +44 20 7213 0334

Rowan Varrall
Associate, Market Practice and Regulatory Policy
Direct line: +44 20 7213 0317