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(In)Efficiencies of current financial market infrastructures - a call for DLT?

Author

Listed:
  • Dr. Basil Guggenheim
  • Prof. Dr. Sébastien P. Kraenzlin
  • Dr. Christoph Meyer

Abstract

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 and discuss how these could be addressed and to what extent distributed ledger technology (DLT) could provide a remedy. We find that the fastest settlement time for repo transactions is 12 seconds, but that settlements are often delayed by more than 10 minutes 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.

Suggested Citation

  • Dr. Basil Guggenheim & Prof. Dr. Sébastien P. Kraenzlin & Dr. Christoph Meyer, 2020. "(In)Efficiencies of current financial market infrastructures - a call for DLT?," Working Papers 2020-24, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2020-24
    as

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    File URL: https://www.snb.ch/en/publications/research/working-papers/2020/working_paper_2020_24
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    References listed on IDEAS

    as
    1. Raphael Auer & Sebastien Kraenzlin, 2011. "International liquidity provision during the financial crisis: a view from Switzerland," Review, Federal Reserve Bank of St. Louis, vol. 93(Nov), pages 409-418.
    2. Fuhrer, Lucas Marc & Müller, Benjamin & Steiner, Luzian, 2017. "The Liquidity Coverage Ratio and security prices," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 292-311.
    3. Morten Linnemann Bech & Jenny Hancock & Tara Rice & Amber Wadsworth, 2020. "On the future of securities settlement," BIS Quarterly Review, Bank for International Settlements, March.
    4. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    5. Sébastien Kraenzlin, 2009. "Interest Rate Setting on the Swiss Franc Repo Market," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(III), pages 351-377, September.
    6. Kraenzlin, Sébastien & Nellen, Thomas, 2015. "Access policy and money market segmentation," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 1-12.
    7. Sébastien Kraenzlin, 2007. "The characteristics and development of the Swiss franc repurchase agreement market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 21(2), pages 241-261, June.
    8. Dr. Basil Guggenheim & Prof. Dr. Sébastien P. Kraenzlin & Dr. Silvio Schumacher, 2011. "Exploring an uncharted market: Evidence on the unsecured Swiss franc money market," Working Papers 2011-05, Swiss National Bank.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Financial market infrastructure; secured money market; distributed ledger;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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