International Monetary Fund
Welcome to the first issue of Volume 11 of The Journal of Financial Market Infrastructures, which provides a collection of papers that highlight the journal’s transition to embrace the role of new technologies, including digital money, central bank digital currencies (CBDCs), blockchains, smart contracts and stablecoins. I would like to welcome to the editorial board Jorge Cruz Lopez (University of Western Ontario) and Anneke Kosse (Bank for International Settlements), who will be the journal’s deputy editors going forward.
As readers will recall, The Journal of Financial Market Infrastructures was the first journal to specialize in publishing peer-reviewed research on financial market infrastructures (FMIs). The landscape of FMIs is rapidly evolving and there is a genuine need for change on how financial transactions are conducted globally. More than a decade after its first issue was published, the journal continues to offer its readers a selection of the best ideas, recent developments and analysis in traditional topics as well as on various other recent themes such as nonbank payment service providers and access to central bank payment rails; tokenized deposits and stablecoins; new technologies for FMIs, including distributed ledger technologies (DLTs), machine learning (ML) and artificial intelligence (AI); and central bank operations.
The three papers in this issue straddle our traditional core topics and some relatively new themes that resonate with our new vision for The Journal of Financial Market Infrastructures.
The first paper in this issue, “The trade-off between shorter settlement times and multilateral netting benefits in deferred net settlement” by Dennis A. McLaughlin, highlights the fact that global banks’ hubs need an hour for netting their intraday balances to avoid losing their “float”. Thus, banks will have a preference for their digital (ie, instantaneous settlement or T0) and conventional (T + 1) business to remain fungible, unlike those regulatory proposals that suggest digital business should be ring-fenced.
In the issue’s second paper, “On the recovery tools of a central counterparty”, Ron Berndsen critically examines whether there is a need to resort to a variation margin gains haircut (VMGH) when some clearing member defaults.
Finally we have “Are cryptocurrencies cryptic or a source of arbitrage? A genetic algorithm approach”, the issue’s third paper. Here, Oluwasegun Bewaji, Sania Hamid, Timothy Aerts, Shaun Byck, Ronald Heijmans and Ellen van der Woerd show analytically that there are persistent arbitrage opportunities in the cryptocurrencies and stablecoins universe due to their volatility; however, no such arbitrage exists in fiat currencies.
We encourage submissions on an ongoing basis, and we aim to create opportunities for conferences and seminars for the dissemination of the key messages of papers that are selected for publication in the journal.
I very much hope that readers will join Jorge, Anneke and me on our journey into new areas of interest. The financial transactions infrastructure truly lies at a crossroads.
The trade-off between shorter settlement times and multilateral netting benefits in deferred net settlement
This paper investigates settlement windows in multilateral netting in the US equity markets, finding that there is no material loss of multilateral netting benefits for windows over an hour.
The author argues that assessments should be preferred over variation margin gains haircutting when CCP resilience is tested by cases of default loss being greater than prefunded financial resources.
The authors identify triangular arbitrage trading opportunities through genetic algorithms in order to find insights into the volatility of cryptocurrencies and stablecoins with the largest market cap.