Financial Market Infrastructure Research Articles

Euroclear’s digital financial market infrastructure

Euroclear’s digital financial market infrastructure

Модель взаємодії структурних елементів фінансового ринку України

The aim of the article is to improve the methodology of studying the financial market of Ukraine, analyzing the interaction between the components of the financial market, studying the reaction of the components of the financial market to sudden changes and forecasting the behavior of the structural elements of the financial market. The financial market plays a decisive role in the modern market economy of Ukraine, providing a mechanism for the redistribution of capital between creditors and investors through intermediaries based on the principles of supply and demand. The development of the financial market and the interaction of its components is the subject of research by many scholars, whose works laid the foundation for a modern understanding of how financial markets function and how they affect the economy as a whole. Despite a significant number of studies on the functioning and development of financial market infrastructure, many aspects of the interaction of market entities in Ukraine remain unexplored, especially in changing external and internal conditions. To model the interaction of market participants in the financial market of Ukraine, an algorithm has been developed, on the basis of which the interaction of structural elements of the financial market of Ukraine has been analyzed, the reaction of the components of the financial market to sharp changes has been studied, and forecasts of the behavior of its structural elements have been made. The study uses a combination of fundamental conceptions of the financial market and the methodology of expert evaluation to determine the most significant statistical indicators that characterize its constituent components. The cause-and-effect relationships between these components are analyzed, the nature of their mutual relationship is revealed. ARIMA models were used to forecast key indicators of the financial market. On the basis of vector auto-regressive models, the dynamic adaptation of market components to shocks is analyzed. The study showed that the credit and interbank markets show less susceptibility to external factors and can even serve as impetus for changes in other structural elements of the financial market. The results of the study can be used for: development of a more effective policy of financial market regulation; development of new methods and tools of influence on the functioning of financial market entities.

Analysis azerbaijani banking sector: in the period of transition to the Basel principles.

This article presents a comprehensive analysis of the problems and perspectives associated with the implementation of Bazel III standards in the banking sector of Azerbaijan, which is a developing country. It emphasized the Bazel principles and emphasized the importance of banks to strengthen their defense against various risks in view of their essential role in the national economy. Basel standards are important for all countries to increase the resilience of the global banking system, to encourage prudential demands and to create a predictable and transparent regulatory environment for internationally active banks. The purpose of transition to Basel standards stated in the “Strategy Roadmap for the years 2016–2020 on the development of financial services in the Republic of Azerbaijan”. The aim is to present the results and to investigate the practical issues of the application of these standards in Azerbaijan. In the investigation, logical generalization and comparative analysis methods that evaluate the regulatory problems of the Bazel standards are used, which is why it is encouraged by the Bazel Committee. Article emphasizes the gap between domestic regulatory demands in Azerbaijan and those proposed by the Bazel Committee, sometimes calculating domestic demands and indicators as harsher and higher in terms of quantity. The results show that the banking sector of Azerbaijan, in which banks are primarily dominant, has undergone significant development in the last ten years, especially in terms of adapting to global crises and increasing the resilience of the sector. However, the implementation of the Bazel II and Bazel III principles remains incomplete, dealing with various difficulties. Analysis shows that, although there is some progress in legislative reforms specifically aimed at compliance with Basel standards, there are naturally certain difficulties in the full acceptance and implementation of these standards in the domestic banking sector. Emphasizing the necessity of continuous strong actions to strengthen the regulatory base of the banking sector, the experience of risk management and the infrastructure to bring it into line with international standards. The paper concludes by emphasizing the need for continued efforts to strengthen the banking sector’s regulatory framework, risk management practices, and infrastructure to align with international standards. Thus, article suggests a multi-faceted approach involving legislative amendments, enhanced risk-based supervision, development of financial market infrastructure, and strengthening of corporate governance in banking sector. The successful implementation of Basel III standards in Azerbaijan will not only enhance the resilience and stability of its banking sector but also contribute to the stability of the financial system of the country.

ИНСТИТУЦИОНАЛЬНО-ЭКОНОМИЧЕСКИЙ МЕХАНИЗМ СТРАТЕГИРОВАНИЯ РАЗВИТИЯ ФИНАНСОВОЙ ГРАМОТНОСТИ НАСЕЛЕНИЯ

The article proposes an institutional and economic mechanism for strategizing the development of financial literacy of the population, the elements of which are combined into three logically interrelated blocks (theoretical, methodological, practical), suggest two directions of implementation. The first is institutional, related to the development of normative legal acts, recommendations, standards, methods for the development of financial literacy of the population; the creation of institutions and the formation of institutions for the development of financial literacy of the population; the development of financial market infrastructure. The second is economic, it contributes to the formation of a sound system of incentives and motives for the development of financial literacy of the population; providing appropriate resources for the implementation of normative legal acts, recommendations, standards, methods for the development of financial literacy of the population; creating equal conditions for access to the financial market and products sold on it. The process of implementing the proposed mechanism is supported by the proposed structure of the Draft Strategy for the development of financial literacy of the population, the provisions of which consistently reveal the features of its implementation.

JURIDICAL STUDIES OF THE LEGAL STATUS OF DIGITAL RUPIAH IN THE CONTEXT OF MODERNIZING FINANCIAL MARKET INFRASTRUCTURE

The rise of exchange rates other than the official state currency in the digital world raises its own problems. The development of the digital economy that is currently developing is supported by digital economic infrastructure, one of which is the official state medium of exchange. Therefore, this is a demand for the public's need for official state exchange instruments that can apply in the digital world. This was then answered by Bank Indonesia through the concept of Digital Rupiah and its derivatives in various Bank Indonesia Regulations. However, there are problems regarding the Digital Rupiah policy and the implementation of secure use of the Digital Rupiah sistem. This research was conducted using a normative juridical method, and the writing stage was carried out through a literature search which was carried out by examining secondary data including primary legal materials, literature, articles, opinions and teachings of experts and their implementation in laws and regulations. Based on the discussion, it can be concluded that policies related to Digital Rupiah as a modernization of financial market infrastructure are still contained in various regulations, including Law Number 4 of 2023, Bank Indonesia Regulation Number 23/11/PBI/2021, and Bank Indonesia Regulation Number 23/10 /PBI/2021. Digital Rupiah security arrangements in Indonesia refer to Bank for International Settlements (BIS) guidelines and include secure technology infrastructure, cloud-based cybersecurity services, risk management and compliance sistems, as well as application and infrastructure security integration through DevSecOps. Reliability certificates are regulated in Government Regulation Number 71 of 2019.

Peran Otoritas Jasa Keuangan Dalam Menjaga Stabilitas dan Keamanan Sistem Keuangan

OJK is the institution responsible for overseeing and regulating the financial services sector, including banking, the non-bank financial industry, non-financial corporations, households, financial markets, and financial market infrastructure. OJK has an important role in monitoring developments in the condition of the financial system, identifying, analyzing and assessing existing risks. In addition, OJK is also tasked with providing and conveying the necessary data and information and is responsible for the accuracy of the data and information submitted. Through strict supervision, strengthening financial system infrastructure, and preventive measures, OJK plays a role in ensuring the stability and security of Indonesia's financial system. 
 

Impact of Financial Development on Inflation in Tanzania: Empirical Evidence from the VECM Approach

This study examines the impact of financial development on inflation in Tanzania using time series data from 1980 to 2020. By employing the VECM analysis method, the study contributes to the existing literature on the relationship between financial development and inflation. The findings reveal that financial development has a significant long-run impact on inflation in Tanzania, resulting in a reduction in inflation in the country. However, in the short run, the impact of financial development on inflation is not statistically significant. Therefore, the study recommends that the government implement appropriate regulatory policies and supervise financial institutions to promote financial sector stability. Further, to promote financial sector stability, greater financial inclusion, higher investment, and economic growth, the government should improve financial market infrastructure, expand the coverage of financial institutions, and increase access to credit. Additionally, fostering the development of more efficient payment systems, particularly electronic payment systems, can mitigate expenses and potential risks associated with cash transactions. Moreover, promoting financial inclusion can reduce the need for cash and enhance the efficacy of monetary policy, serving as a preventive measure against inflationary pressures and unnecessary credit growth.

Sweden

The Swedish financial market infrastructure (FMI) is modern, stable, well-developed, and subject to regulation and to the CPMI-IOSCO Principles for Financial Market Infrastructures (PFMI).

The Evolution of Financial Market Infrastructure: From Digitalization to Tokenization

This paper examines the historical development and cross-sectional heterogeneities of Financial Market Infrastructure (FMI). From an evolutionary perspective, we review and compare FMIs in the US, Europe, and China. We identify an emerging trend in which the development of FMI is transitioning from digitalization to tokenization with the rise of Distributed Ledger Technology (DLT). Digitalization reinforces centralization, while tokenization promotes decentralization, posing complex challenges to regulatory framework which is also part of FMI. We then specifically analyze DLT-based FMI in the bond market, evaluate different models of tokenization, and propose a heterogeneous consortium blockchain solution.

Approaches to asset tokenization for the development of e-commerce

In the paper, using the example of analysing the approaches of scientific research of scientists from different countries, a new form of development of trade and economic relations is explored – e-commerce and its innovative electronic financial instrument – asset tokenization. The study was based on an analysis of the approaches of scientists, as well as on practical analytical studies, which presented an understanding of the features of the influence of tokens as a financial instrument on the development of e-commerce. Among the main methods used in the study, the comparative method, the method of historical reconstruction of development and analytical interpretation, as well as other general scientific and specialized methods were used, which formed an interdisciplinary methodological toolkit. Based on the research materials of scientists, the article makes a historical excursion into the formation of e-commerce and its digital and financial instruments in the context of global economic crises and overcoming their consequences for the financial market infrastructure, because of which three periods of development of the transformation of e-commerce are identified. As a result, the paper proves that the scientific problem of tokenization of assets has been little studied; the materials of the authors’ scientific research indicate the formation of three main areas of research: the formation of transaction logistics; digitization of the supply chain; the transformational impact of blockchain technology in the development of e-commerce. The article presents the main characteristics of scientific approaches for each of the three groups of studies, which reflect the impact on the development of e-commerce. The systemic impact of asset tokenization on the development of e-commerce is summarized as a transition to a new level of simplification of interaction between counterparties and the formation of an innovative system for protecting ownership of a digitized asset, which also affects its liquidity, and prospects for further research on this new economic issue are presented.

Недержавні пенсійні фонди: сучасний стан і перспективи розвитку в Україні

The aim of the article is to analyze the current state of functioning of non-State pension funds, define their main problems and prospects for development. According to the legislation, Ukraine has a three-tier pension system, the third level of which is the system of non-State pension provision, the basis of which is constituted by non-State pension funds. A non-State pension fund is an institution or organization that collects and invests pension contributions and maintains individual pension accounts for participants in the pension system. Non-State pension funds manage investments, using the accumulated money reserved for retirement to ensure the growth and preservation of participants’ retirement savings. The main goal of their investment activities is to generate sufficient income for future pension payments. The non-State pension funds play an important role in mobilizing financial resources and forming the investment potential of the pension system. The main indicators of activity of non-State pension funds are analyzed, namely: the number of concluded pension contracts, the total number of NSPF participants, the total value of NSPF assets, pension contributions, pension payments, and the amount of investment income. The problems that impede the effective functioning of non-State pension funds are classified as: economic, demographic, legal, investment, and psychological. The most important problem hindering the development of the system of non-State pension provision, including the functioning of non-State pension funds, is the non-perception of it as an alternative to the State-based system. The effective operation of non-State pension funds in the country depends on many factors, including the standard of living of the population, as well as the development of financial market infrastructure. Measures to intensify the activities of non-State pension funds in the financial market of Ukraine in the current economic conditions are substantiated. It is noted that the intensification of the activities of non-State pension funds will help reduce the burden on the Pension Fund of Ukraine and the State budget of our country.

Развитие независимого финансового консультирования частных инвесторов: анализ отечественного и зарубежного опыта

Attracting household finances to the country’s economy and competent management of personal finances are among the tasks of the state. The issues of rational financial planning and minimizing the risks of loss of personal wealth are acute for private investors. Independent Wealth Management Advisory is an intermediary activity between financial institutions and households. Independent advice to private investors is one of the tools in solving the problems of the state and investors’ issues. As a result of the analysis of the activities of an investment adviser in Russia and abroad, using the example of the United States and Great Britain, it was revealed that experience is adopted from other countries, but in Russia it is not fully implemented. In Russia, the main part of independent advisers is in the ‘gray zone’, their activities are not regulated at the level of law and self-regulatory organizations in the financial sector. Therefore, the author’s approach is to propose to separate the activities of investment advisers, which are enshrined in law and independent financial advisers, who currently operate without any regulation. The regulatory and training function for independent financial advisers should be entrusted to SROs. Firstly, separating the activities of independent financial advisors allows them to provide educational services to a wide range of people and the provision of consulting services in private without providing investment recommendations, but with the definition of the risk profile of the investor. Introduce licensing for various types of activities. Secondly, it is key to determine the principles for charging the services of independent financial advisors. The proposed steps will make the provision of independent household financial advisory services transparent and understandable to regulators, investors and those who operate or plan to choose as a future profession. This will serve to attract private capital to the financial market, reduce the risk of loss of wealth, move the existing advisers out of the ‘gray zone’, and make personal finance advisers an integral part of the financial market infrastructure.

(In)efficiencies of current financial market infrastructures: an empirical assessment

We use unique individual bank-to-bank repo transaction data to empirically assess the efficiency of the existing Swiss financial market infrastructure (FMI) for executing delivery versus payment transactions. This approach enables us to identify its current benefits and drawbacks as well as where new technologies, such as distributed ledger technology, could provide a remedy. We find that the fastest settlement time for repo transactions is 12 s, but that settlements are often delayed by more than 10 min due to the lack of collateral availability. We conclude that the cross-border availability of securities needs to be addressed by either improving interoperability of existing infrastructures or using new technologies.

Empirical Determinants of Derivative Markets in Asia, Latin America and Sub Saharan Africa

The paper examined the relationship between the derivative markets and financial markets depth, efficiency, stability and access in Asia, Latin America and Sub-Sahara Africa. A panel logit model was applied from the period 2009 to 2017 on the financial market development data collected for countries in Asia, Latin America and Sub-Sahara Africa. The results of the panel logistic regression model positively revealed that derivative markets are influenced positively by the improvement to financial access (measured by stock market capitalization to GDP) and financial efficiency (measured by net interest margin) of the financial markets of the regions studied. However, an examination of financial depth and financial stability were observed to have an adverse propensity for the derivative market development. Therefore, countries in Asia, Latin America and Sub-Sahara Africa are recommended to significantly focus on improving financial efficiency and financial access within their respective financial markets. Further a document review was carried on the publications of the Committee of Global Financial System (CGFS) and Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlement (BIS). It is recommended that policy makers must promote greater respect for market autonomy, strengthen legal and judicial systems, boost regulatory independence and effectiveness, deepen the domestic investor base, pursue bi-directional international participation while preparing for spill overs and develop robust financial market infrastructure to facilitate the establishment of vibrant derivative markets. Keywords: Bank for International Settlements (BIS), Derivative markets, financial access, financial depth, financial efficiency, financial stability and panel logit model. DOI: 10.7176/RJFA/13-18-03 Publication date: September 30 th 2022

Models for building a new financial market infrastructure based on distributed technologies

Subject. The article presents a theoretical analysis of foundations for building a new financial market infrastructure based on distributed technologies. Objectives. The focus is on theoretical elaboration of the framework for a new model of financial market infrastructure on the basis of distributed technologies. Methods. The study draws on general scientific research methods through logical and comparative analysis. Results. We analyzed the main channels of digital transformation, noted the growing role of new intermediaries in the form of ‘aggregators’, ‘showcases’, and ‘marketplaces’, companies providing customer identification (onboarding, KYC) and remote risk management. The paper systematizes intermediaries in the infrastructure of decentralized finance. Based on the analysis of new business models of banks, we highlighted their key features and capabilities and stressed the growing need for transformational processes under strengthening sanctions pressure on the financial market of the Russian Federation. Conclusions. Transformation processes of financial intermediation models are driven by the high rate of progress in technological solutions and rapid digitalization of the financial services market. This enables to extract the synergy of financial and non-financial services by forming a new infrastructure. The provisions of this study may serve as a theoretical basis for applied research by financial market specialists.

MIFID II and EMIR impact on Romanian banking system performance

Abstract MIFID II/MiFIR represents comprehensive financial market reforms in trading and settlement of financial instruments. The greatest impact of the new regulatory framework in the banking sector relates to pricing, trading, and reporting of banking products and classification of financial institutions. The new role of the financial market infrastructure provides more protection for bank customers and significantly increases market transparency. Banks are required to show their customers the best execution price on the relevant trading venues, transaction costs and market behavior. The regulation will be aligned with other financial market regulations of over-the-counter markets and market abuse protection to avoid regulatory overlap - European Market Infrastructure Regulation (EMIR). The new regulatory framework requires the banking sector to fully comply with the rules governing the banking system of the European Union. Banks must incur significant costs in order to restructure internal processes, acquire new technological support, and forego additional profits in competitive and transparent markets. This study analyses the impact of MiFID II/MiFIR and EMIR implementation on local banks’ performance (credit institutions, Romanian legal persons). Using a unique dataset from banks that have been operating in Romania over the period 2004-2020, it is shown that the implementation of the new regulatory framework did not affect the net trading income ratio of the selected banks. Moreover, the average trading asset ratio in the post-financial crisis period increased in comparison with the average trading asset ratio in the pre-financial crisis period. Local banks that took advantage of the large economies of scale obtained due to branch banking did not reduce their investment banking activities and product offerings to customers in the period following the introduction of the regulatory framework. Most of the costs of implementing the new regulatory framework were borne only by the ultimate parents of the controlled Romanian subsidiaries. All subsidiary banks benefited equally from these economies of scale.

Germany

Clearstream Banking Frankfurt (CBF) is a highly interconnected financial market infrastructure that provides a critical service for German financial markets and beyond. CBF is the central securities depository (CSD) in Germany providing mainly custody and settlement services, having received its license pursuant to Art. 16 of the CSDR on January 21, 2020 allowing it to perform core CSD services as well as non-banking ancillary services. It is also the operator of two securities settlement systems (SSS). In addition, CBF was authorized on August 24, 2021 to provide banking-type ancillary services as envisaged under Art. 54 CSDR.

INNOVATIONS IN FORMING FINANCIAL ECOSYSTEMS

In the rest of the world, up to 75% of GDP growth in the world’s most developed countries, the very beginning of innovations is established. The process of promoting financial innovations is shifted by the following factors: price volatility in most sectors of the market; informational asymmetry; inconsistency of the terms of the innovation process; high risk levels – political, financial, currency; lack of innovation infrastructure; unacceptability to innovation from the side of participants in the financial market; Insufficient value for the development of the system of financial law and protection of the rights of supporters of financial services. Irrespective of the importance of innovation shifts, look at the importance of technological innovations in the field of information security and communications. The result of which was the emergence of financial ecosystems, the relevance of such research is developing. In the article, the essence and determinants of the formation of financial ecosystems are identified. On the basis of the analysis of current trends in the development of financial markets, financial innovations, which are generated by these trends, have been developed. It is undeniable that the development of the digital economy is directly strategic for the development of financial innovations. The liberalization of financial funds, in the minds of the development of the digital economy, stimulated the emergence of a new type of bank development, with new business models that are based on a single platform of the financial market. It has been announced that the fintech industry is investing first for everything in the development of the financial market infrastructure, five fintech clusters have been seen. Promoted directly to the development of securitization of assets. It is emphasized that the formation of eco-system financial innovations should be set before the regulatory authorities for the promotion of such innovations and the development of digital technologies

South Africa: Financial Sector Assessment Program-Technical Note on Financial Safety Net and Crisis Management

This Technical Note sets out the findings and recommendations of the Financial Sector Assessment Program (FSAP) for South Africa on financial safety net and crisis-management arrangements. It primarily focuses on the arrangements for early intervention, recovery, resolution, and financial safety nets for banks in South Africa. To a lesser extent, the note also addresses issues relating to recovery and resolution applicable to insurers and Financial Market Infrastructure (FMI).

The Threat of Financial Sanctions: What Safeguards Can Central Banks Build?

AbstractThe sanctions imposed by the G10 countries on financial institutions in Russia, including on its central bank, will come under scrutiny by emerging market central banks. This will help them build appropriate safeguards against disruptions to cross‐border transactions and revise their investment mandates to reduce the risk of reserve asset freezes. Building new financial market infrastructure and cross‐border payment systems, or strengthening existing ones, will become the priority of emerging global powers. The goal will be to build systems that support democratic governance mechanisms, have oversight arrangements involving the central banks of trusted countries, and promote fair and safe access to clearing and settlement under well‐defined policy guidelines. The use of alternatives to the US dollar as the invoicing currency in international trade will gather momentum. Markets for energy and other commodities will be the change drivers. China has an important role to play.