Over the last decade, FinTech has proven a gamechanger for multiple sectors in financial services, ushering in more efficient and cost-effective services in everything from banking to payments, loans and foreign exchange (FX). While at a wholesale level, financial technology has proven revolutionary in areas such as trading technology, the world of institutional Money Markets has remained relatively untouched by new solutions. So how can a market which continues to rely so heavily on traditional voice brokerage benefit from the type of new technology already a fact of everyday life in many other parts of the financial system?
A structural problem
Unsecured MoneyMarket lending and borrowing is one of the least modernised or digitized parts of the financial system. It is a EUR 114 BN a day market in Europe that is critical to the day-to-day functioning of the economy, yet it has remained largely reliant on voice brokerage and bilateral trading.
What this means in real-terms is that banks, corporates, pension funds, insurance companies and asset managers that require unsecured funding or wish to put cash to work on a short-term basis still face difficulty finding the right counterparties and accessing liquidity.
A lack of control over spreads and an ability to gain a comprehensive view of best execution compound the issue, concentrating risk and increasing trading costs for both borrowers and lenders.
Revealingly, Money Markets studies that have been undertaken by The Bank of England (BoE) and European Central Bank (ECB) have shown that participants think the market is not working efficiently enough, with half of banks responding to an ECB study saying the…