'A sea change in capital markets infrastructure'
Digital gilts, stablecoins, and the Texan approach to markets
Good day, and welcome to several dozen new subscribers.
NextFi’s core thesis is clear: financial infrastructure is being rebuilt as digital-native.
That means new and modernised financial systems, purpose-built to meet the speed and seamlessness of modern digital exchange.
Infrastructure change takes time, and rightly so. But the pace is quickening - across payments, digital assets, currencies, securities services, credit and banking.
In every part of finance, and in every advanced market, digital finance is accelerating.
That’s one reason AI is becoming so indispensable, so quickly. The system produces torrents of data. AI is emerging as a tool to enable smarter decisions amid the deluge.
The smart move? Position yourself close to the infrastructure powering this transformation.
It’s where the most value will be created.
NextFi aims to help you in that objective. It’s produced by me, Marc Andrew. Please don’t hesitate to get in touch.
On with 7 clips from around the world. And enjoy your weekends.
San Francisco | Visa is launching a platform for banks to issue fiat-backed tokens such as stablecoins and tokenized deposits, as more financial institutions and businesses express interest in how cryptocurrencies and blockchain technology can improve their operations.
The product, which will be known as the Visa Tokenized Asset Platform or VTAP, will allow banks to “mint, burn and transfer” tokens. While still in the testing stage, the plan is to go live next year, according to a Thursday statement.
Stablecoins are cryptocurrencies whose value is usually pegged to assets such as the dollar. They’re used to conduct transactions and as a refuge from the often volatile price swings in tokens like Bitcoin and Ether.
Spanish bank BBVA has been testing the platform through the year and expects a pilot for select customers on the Ethereum blockchain at some point next year
Read the full story in Bloomberg
London | City minister Tulip Siddiq is pushing for the UK to start issuing “digital gilts” on the blockchain, amid concerns that Britain needs to modernise its markets to compete internationally.
The government’s Debt Management Office (DMO), an executive agency of the Treasury that is responsible for issuing and managing the government’s debt, has resisted the move, according to one former minister and several department officials familiar with the discussions. But the officials said Siddiq was determined to move ahead to combat the risk of the UK being “left behind” by global peers.
“There has been some resistance to change, but Tulip doesn’t see any concrete reason why this shouldn’t happen,” said one Treasury official briefed on the discussions. “In the long term this is where we are going. We are not keeping up with the rest of the world and we risk being left behind.”
Industry group UK Finance has been among those calling for the UK to launch a digital gilt to show the government’s “commitment” to the technology and help position the country as a leader in digital assets.
Read the rest in the Financial Times
New York | Money managers are racing to bring the Wall Street craze known as private credit to ordinary investors.
Investment giants including Apollo Global Management, BlackRock, Capital Group, KKR and State Street are jostling to launch private-credit exchange-traded funds and other retail products. The funds would allow anyone to buy into the $1.7 trillion market for loans made by Wall Street’s nonbanks to corporations and consumers.
The winner will be whoever can offer a fund with shares that can be easily bought and sold and get the green light from government regulators. Their prize: full access to mom-and-pop investors when many sophisticated institutions are filling up on private credit.
The toughest problem is how to turn rarely traded portfolios of private loans into shares of funds that individuals can dip in and out of. That is a key requirement for regulators—and a task that many market veterans are skeptical can be achieved.
Read the full story in the Wall Street Journal
Toronto | The growth of alternative asset classes has skyrocketed over the last decade. One by one, equities, bonds, FX, commodities, and more have slowly moved from handshakes, opaque pricing and the telephone to transparent data, open marketplaces, and straight-through-processing.
As part of a large asset manager, and with OMERS’ investments including the likes of Carta, Crunchbase, and Affinity, we’ve had a front row seat to some of the opportunities in private markets data and the importance of a strong go-to-market strategy.
As a result, we believe we are in the midst of a sea change in capital markets infrastructure, creating previously unimaginable opportunities for select startups to come away as big winners and category-defining industry leaders in the coming decade.
In contrast to equities and corporate bonds, the infrastructure supporting alternative assets is nowhere near as well-established, making them a prime target for innovation as the class reaches scale.
Read the full investment thesis at Omers Ventures
Belgium | Global bank messaging network SWIFT will trial live transactions of tokenised assets and digital currencies next year, it said on Thursday, the latest step in the currently slow-moving integration of such assets into the wider financial system.
Banks and asset managers have been exploring "tokenising" traditional assets like bonds for several years.
They hope that by using digital units - usually blockchain-based tokens that represent a share of the underlying asset - trading can be quicker, cheaper and more efficient, including by cutting out middlemen involved in many transactions.
Around 90% of the world's central banks are also testing central bank digital currencies (CBDCs), digital versions of fiat money, that facilitate trading of tokenised assets.
Monetary authorities are trying to get on top of technological advances that have enabled cryptocurrencies like bitcoin.
Read the full story in Reuters
Dallas | The head of the fledgling Texas Stock Exchange has pledged tougher listing standards than his New York rivals as part of his state’s bold attempt to establish Dallas as a financial challenger to east coast dominance.
Jim Lee, chief executive of the TXSE, told the Financial Times the new exchange’s standards, including earnings tests, minimum prices and other unspecified measures, would be stringent enough to in effect exclude more than a third of the companies listed on Nasdaq and the New York Stock Exchange.
The comments push back against early expectations that the nascent bourse would adopt looser rules in its attempt to break New York’s pre-eminence.
“Ours are going to be the tightest [quantitative standards] inside of the strike zone,” he said in an interview. “Our qualitative standards will be tighter, not on every element, but in total, such that about 1,500 Nasdaq companies [would] fall out and about 200 NYSE companies [would] fall out — that would not qualify for continued listing on our exchange.”
NYSE and Nasdaq declined to comment.
Read the rest in the Financial Times
London | The U.K. has opened its testing environment — the Digital Securities Sandbox (DSS) — to applications from financial firms looking to bring tech-based innovations to securities markets and financial market infrastructure.
Earlier this year, the U.K.’s Financial Conduct Authority (FCA) and the Bank of England (BoE) — which will jointly operate the sandbox — carried out a consultation on a proposed sandbox that will allow firms to try out the application of new technologies in traditional financial markets.
The sandbox is intended to allow firms to test technological innovations, such as trading digital versions of traditional securities — including bonds, equities, investment funds, and money market instruments. It’s not aimed at testing trading and settlement for novel assets, such as cryptoassets, the FCA and BoE said in a release.
“The aim of the DSS is that these securities should be capable of being used in broadly the same way as traditional securities,” the regulators said. “For example, firms should be able to use the securities issued in repurchase agreements or write derivative contracts based on securities in the DSS as they normally would any other security.”
Read the rest in Investment Executive
San Francisco | PayPal completed its first business payment using its proprietary stablecoin as a way to demonstrate how digital currencies can be used to improve often-clunky commercial transactions.
PayPal paid an invoice to Ernst & Young LLP on Sept. 23 using PYUSD, the stablecoin the firm launched last year, relying on an SAP SE platform to complete the transaction. SAP’s platform, known as the digital currency hub, allows enterprises to send and receive digital payments instantly, around the clock. The invoice amount wasn’t disclosed.
“The enterprise environment is very well-suited for it,” he said. “It’s a very rational conversation to have with the CFO.”
Business-to-business transactions – especially those that cross borders – can be drawn out, expensive and, in some cases, risky, given the requisite reliance on third parties. The speed and availability of settlement with this use case is far more attractive, Fernandez da Ponte said.
I think Private Markets Indexing is the next part of your infrastructure chart. See https://signalrank.ai and https://signalrank.co