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The International Swaps and Derivatives Association (ISDA) announced a pilot implementation of the Common Domain Model (CDM) for the clearing of interest rate derivatives using DAML, an open-source smart contract language created by Digital Asset. Using the CDM for clearing and deploying it on a distributed ledger with DAML will remove the burden of setting up connections to incongruous systems and services, facilitating interoperability, automation and straight-through processing. This pilot takes the CDM model for clearing and adds new features for the signing of state transitions, data ownership and privacy elements, which are necessary to put the CDM clearing model into production.

LCH SA has received the required regulatory approval from the French national competent authorities (ACPR, Banque de France and AMF) and European supervisory authorities (EMIR College, ESMA) to clear cash-settled Bitcoin index futures and options contracts. LCH SA will provide clearing services through its new dedicated service, LCH DigitalAssetClear, for these contracts traded on the UK FCA regulated digital asset derivatives trading venue, GFO-X. LCH DigitalAssetClear is underpinned by a segregated default fund, tailored risk management model and dedicated set of clearing rules. LCH SA plans to launch the clearing service later in 2024.

CFTC data shows a sharp increase in NDF clearing since July this year. September 2019 was a record month for the notional of NDFs cleared. BIS data shows that NDF markets doubled in size between April 2016 and April 2019. Is Phase 4 of the Uncleared Margin Rules accelerating the uptake of NDF clearing?

Backed by the People's Bank of China (PBOC), China launched the Cross-Border Interbank Payment System (CIPS) cross-border clearing and settlement services system in 2015 to internationalise yuan use. It allows global banks to clear cross-border yuan transactions directly onshore, instead of through clearing banks in offshore yuan hubs. For now, CIPS still largely relies on SWIFT for cross-border financial messaging but it has the potential to operate independently and have its own direct communication line between financial organisations. For Chinese banks and corporates, CIPS can serve as a messaging system without the risk of exposing transaction information to the United States.

The Commodity Futures Trading Commission (CFTC) issued a staff advisory on the risks associated with the expansion of Derivatives Clearing Organization (DCO) Clearing of digital assets. Noting the increased cyber and other risks that may be associated with digital assets, the CFTC expects DCOs and applicants to actively identify new, evolving, or unique risks and implement risk mitigation measures tailored to the risks that these products or Clearing-structure changes may present.

CME this month filed rule changes with the CFTC that will give it the right to impose variation margin gains haircutting (VMGH) as a recovery tool for its rates clearing segment. The clearing house operator is also looking to introduce partial tear-ups for troublesome contracts, for the purposes of recovering rather than winding down the CCP.

Wedbush Securities will begin using blockchain technology to settle certain stock trades, using Paxos on a pilot basis. Paxos recently tested same-day settlement of trades on the blockchain. Paxos currently operates its blockchain-based settlement system under a "no-action" promise from the U.S. Securities and Exchange Commission (SEC). Meanwhile, Paxos is applying to become a clearing agency with the SEC, which would make the cryptocurrency custodian one of just two clearing agencies in the U.S., joining the Depository Trust & clearing Corporation (DTCC).

The Depository Trust and Clearing Corporation (DTCC) is developing a prototype to test the ability of US Clearing and settlement infrastructure to support a Fed-issued CBDC using a distributed ledger technology (DLT) platform. Project Lithium will measure the benefits of a CBDC and inform the future design of the Depository's Clearing and settlement offerings. It will also explore how a CBDC could enable atomic settlement, a conditional settlement that occurs if delivery and payment are both received at the same time.

EBA Clearing, The Clearing House (TCH) and SWIFT announced that the delivery of the Immediate Cross-Border Payments (IXB) pilot service is on track. Developed with the support of 25 financial institutions from both sides of the Atlantic, the IXB pilot service will leverage existing real-time payment systems RTP in the United States, run by TCH, and RT1 in Europe, run by EBA Clearing. IXB will begin processing the first live transactions in the EUR and USD currency corridor in the coming months.

The U.S. Securities and Exchange Commission (SEC) sued Coinbase on allegations of violating federal securities law, a day after filling a similar suit against Binance. According to the SEC, Coinbase has operated as an unregistered broker, exchange and clearing agency simultaneously, arguing that it solicited customers, handled orders, allowed for bids and acted as an intermediary all at once. "The Coinbase Platform merges three functions that are typically separated in traditional securities markets - those of brokers, exchanges, and clearing agencies... Yet, Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency, thus evading the disclosure regime that Congress has established for our securities markets." https://www.sec.gov/news/press-release/2023-102

The European Securities and Markets Authority (ESMA) recognized that the three central counterparties (CCPs) established in the United Kingdom - ICE Clear Europe Limited, LCH Limited, and LME Clear Limited - will be recognised as third country CCPs (TC-CCPs) eligible to provide their services in the EU, after the end of the transition period following the withdrawal of the UK from the EU on 31 December 2020.

FX Derivatives (FXD) participants face a tricky choice across a patchwork of clearing and uncleared optimization techniques, trading off funding and capital usage with infrastructure spend and operational risk. In earlier posts, we showed you how FX IM optimization via NDFs and FX Options clearing developed in Q1 2019.  Here I update the volumes for Q2 2019 and set the trends alongside other emerging techniques in FXD counterparty risk reduction.

"All financial market participants need to be incentivised to manage risks associated with clearing properly, and regulators must take care not to put too much of the burden on one actor only - in this case, CCPs. The FSB will issue a further consultation on this topic next year."

Gemini launched Gemini Clearing that will allow OTC trading for its users. The new service will be accessible by everyone both retail traders as well as institutional investors.

Experts at the MIT Bitcoin Expo on Saturday argued that blockchain as a technology is not yet a clear choice for central bank digital currencies due to challenges regarding privacy protection, interoperability, and the ability to move value on a consistent basis. At the same time, they believe that the introduction of central bank digital currencies is a necessary improvement upon the existing global financial system because they advance financial inclusion, cut the cost of handling cash and help mitigate risks during crises.

The Options Clearing Corporation that helps BATS, Cboe, Nasdaq NDAQ and the NYSE clear equity derivatives is now in the process of moving its currently $72 billion stock lending infrastructure to to Axoni's Axcore blockchain. Each participant in a deal will run their own nodes, giving them real-time direct access to the same pool of data, instead of relying on a series of time-consuming messages.

The People's Bank of China (PBOC) announced that its joint venture with SWIFT will start offering cross-border transaction services. The Finance Gateway Information Services Company will set up a Chinese network for financial messaging services. The firm will also set up a localized data warehouse to monitor and analyse cross-border payment messaging. The Finance Gateway Information Services Company was set up in mid-January, as a joint venture between SWIFT and the China National Clearing Centre, a PBOC subsidiary. Minority shareholders include China's Cross-border Interbank Payment System (CIPS), the Payment & Clearing Association of China and the PBoC Digital Currency Research Institute.http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4212383/index.html

This U.S. Federal Reserve paper identifies some high-level environmental preconditions that support a general-purpose CBDC in the United States. These preconditions are necessary, though not sufficient, and can be broadly grouped into five areas: clear policy objectives, broad stakeholder support, strong legal framework, robust technology, and market readiness. Within each area, detailed elements are discussed. These areas and elements are not exhaustive because many systems, tools, processes, and structures will need to be in place for a CBDC. In addition, many of these elements are interconnected. For example, engaging with a broad array of stakeholders and monitoring market readiness could inform clear policy objectives and vice versa. The paper does not attempt to prescribe how to address these preconditions; it aims to spark further inquiry.

Bank of America joined Credit Suisse and Nomura's Instinet on Paxos Trust's blockchain-based stock-settlement network that settles trades in minutes rather than days. Paxos Settlement Service is a private, permissioned blockchain solution designed to allow two parties to bilaterally settle securities trades directly with each other. The platform is interoperable with the legacy clearing system and can facilitate settlement on any time cycle. Bank of America has been conducting internal transactions for the past few months and, if approved as a clearing agency, will offer the service to clients next.

The People's Bank of China (PBoC) China National Clearing Center (CNCC) and its Digital Currency Research Institute (DCRI) has partnered with SWIFT to launch a new financial payment service, Finance Gateway Information Service Limited. No further details on the functions or scope of the funding were offered on the registration document. SWIFT owns 55% of the incorporation contribution, CNCC owns 34%, DCRI 3%, CNCC's subsidiary Cross-border Interbank Payments and Settlement Limited (5%), and the Clearing Association of China (3%).