Subscribers of my weekly newsletter will know that I’ve been working on a multi-part series about the nature of our intraday funding systems for weeks now. And yes, I’ve been over promising and under-delivering on its publication for a while. One of the reasons for the delay is that the piece has massively grown in size and scope. I’ve spoken to many players… and been hugely informed in the process.
But it’s grown into such a beast of a piece, it’s going to have to be serialised. I aim to publish the first part of the series on Sunday. (This will cover the creation story of the perpetual future and features an exclusive interview with Ben Delo, one of the three founders of BitMEX, the exchange that first listed the instruments.)
In the meantime I wanted to draw readers’ attention to a press release out today from a fintech called Finteum. The group is working with top-tier banks to create a platform for trading intraday liquidity in real-time. I sat down with the co-founder of Finteum, Brian Nolan, last week, and was amazed to discover how far along things had come with respect to creating a viable mechanism for the trading of intraday funds.
Nolan’s view about what ails the funding system is similar to mine. He agrees we need to find a better and more effective way to send signals to the market about intraday imbalances so that offsetting funding can be quickly matched through the interbank market. His platform aims to provide the price discovery mechanism to facilitate this.
The fintech has now raised another £1.3m to ensure that such a system can go live by 2023.
I’m posting the press release about the funding in its entirety as it offers some interesting details about the nature of intraday funding today. I’ve highlighted the most important bits, but I recommend that its reading be paired with a reading of the other piece about intraday funding I’ve posted today. It’s about the role intraday funding frictions may have played in exacerbating the LDI rebalancing that spooked the gilt market this week.
Here’s the release(emphasis mine):
Intraday Liquidity platform, Finteum, raises £1.3 million
Seed funding enables Finteum, a London fintech start-up, to scale its intraday liquidity management technology,
enabling more banks to benefit.London, 30 September 2022 – Finteum, a UK-based fintech company, has secured a £1.3million Seed funding
round led by SuperSeed.Over the past decade, few industries have been subject to as much new regulation as banking. Basel III
regulation means that banks need to hold evermore liquid assets on their balance sheets. This is held in
reserve, just in case it becomes needed. Banks often find that they end up holding more cash and foreign
currency than strictly required – especially during certain periods of each trading day. That is costly for banks,
and these costs are rapidly increasing due to the rising interest rate environment.Finteum is a trading platform that enables banks to borrow for hours at a time, allowing them to efficiently
meet a temporary liquidity need. Use of the platform becomes an important component of banks’ liquidity
optimisation strategy, and banks predict that it will reduce each bank’s costs by millions of dollars per year.
Banks can also use intraday markets to lend excess funds, representing a new revenue stream.Finteum’s platform is built on Distributed Ledger Techonlogy which helps streamline execution and settlement
of trades. This enables banks to lend to each other for hours at a time through intraday FX swaps and intraday
repo – something that is inefficient with traditional technology, which often settles in days rather than minutes.Three large European banks have already signed up to the platform which goes live for trading in early 2023,
and more than a dozen other banks have expressed interest in joining the initial group.The investment round will enable Finteum to expand functionality and bring many more banking clients on
board the platform. In addition, it will help the company attract and develop more talent this year to support
the company’s ambitious plans.Brian Nolan, Co-founder and CEO of Finteum, explained, “we are delighted to have the financing in place to
grow our company and to support client banks until go-live and beyond. We are looking forward to working
with more clients and partners in this next phase of Finteum’s journey.”Zbi Czapran, Co-founder and CTO of Finteum, said, “we are working to transform how banking is done using
next-generation technology. I am excited for the next phase of Finteum’s growth and for the superb engineers
we are bringing in to the team to develop and provide an enterprise-grade product to our clients.”Mads Jensen, Managing Partner at SuperSeed, commented,: “Finteum provides an elegant way for top tier
banks to earn yields on their reserve assets using Distributed Ledger Technology. We are proud to partner with
Brian and Zbi who are thought leaders in the intersection of distributed ledger technology and bank liquidity
management. We expect to company to provide transformational technology to leading banks in the years to
come”.Notes to editors:
About Finteum
Finteum is a London-based fintech start-up founded by Brian Nolan and Zbi Czapran in 2018. The company is
transforming how tier 1 banks manage liquidity using its next-generation treasury and trade management
platform. Finteum’s platform leverages R3’s Corda Distributed Ledger Technology protocol to provide banks
with the only effective way to manage intraday treasury funding, using financial products such as FX swaps and
repo.
While I understand why Finteum’s press release makes a big thing about the platform using distributed-ledger-technology design, I don’t think that’s got anything to do with what makes the system smart or effective. I myself am even more optimistic than Nolan about what systems like his can do for the financial system’s capacity to detach itself from excessive central bank dependence. It’s not just about saving a bit of money with smarter collateral and liquidity management in the face of stiffer regulatory requirements. It’s about tying the financial system ever more precisely to the real-time needs of the real economy. Nolan and his co-founders, of course, may disagree.
