Financial Market Infrastructure

Definition

• Financial Market Infrastructure encompasses systems and entities involved in:
  • Clearing
  • Settlement
  • Recording of payments, securities, derivatives, and other financial transactions.
• Can refer to the category in general or specific companies/entities (plural: financial market infrastructures).

Examples of Financial Market Infrastructure Firms

• Payment Systems
• Securities Settlement Systems
• Central Counterparties
• Central Securities Depositories
• Trade Repositories

Examples of Firms with Global Reach

• SWIFT: Financial messaging service
• CLS Group: Foreign-exchange settlement service provider
• Euroclear Bank and Clearstream Banking SA: International central securities depositories

Major Commercial Firms

• Depository Trust & Clearing Corporation (DTCC): Operates numerous services in the U.S. including DTC, FICC, NSCC, and a global derivatives trade repository.
• The Clearing House Payments Company (PayCo): Operates CHIPS in the U.S.
• CME Clearing, ICE Clear Credit, Options Clearing Corporation: U.S. derivatives clearing.
• Eurex Clearing, SIX SIS, London Clearing House: Operate in Europe.
• China Central Depository & Clearing (ChinaBond), China Securities Depository and Clearing Corporation (ChinaClear), Shanghai Clearing House, CIPS: Operate in China.

Financial Trading Venues

• Include stock, futures, commodities exchanges, and electronic trading platforms.
• Not always considered financial market infrastructures unless subject to competition.
• In certain jurisdictions like Switzerland, they are included in financial market infrastructures.

Central Bank-Operated Infrastructures

• Operate many payment systems and real-time gross settlement (RTGS) systems such as:
  • High-Value Payment System (China)
  • T2 (Euro area)
  • CHAPS (UK)
  • Fedwire (U.S.)
• Other infrastructures:
  • China Foreign Exchange Trade System (CFETS)
  • TARGET2-Securities in the Euro area

Regulation and Monitoring

• Financial market infrastructures are often natural monopolies and are of critical systemic importance.
• Subject to intrusive regulation and monitoring.
• Global Standards:
  • Principles for Financial Market Infrastructures (PFMI), issued by the Committee on Payments and Market Infrastructures (CPMI) and IOSCO.
• Supervision & Oversight:
  • Supervised by prudential authorities and securities commissions.
  • Central banks also involved in oversight.

International Oversight Frameworks

• Exist for SWIFT (led by National Bank of Belgium) and CLS (led by U.S. Federal Reserve).
• Eurosystem oversight framework led by the European Central Bank.

Related Concepts

• Market Microstructure
• Financial Market Infrastructure Act (Switzerland)
• Systemically Important Financial Market Utility (U.S.)
• Systemically Important Payment Systems (defined by Committee on Payment and Settlement Systems)