Existing opportunities
Existing structure
Lessons from other asset classes
Leveraging technology
Introduction
Precious Metals Market Post-Trade Spotlight Review
Opportunities in the existing post-trade process continued
If all market participants can collectively achieve a shortened settlement period, then the post- trade process is likely to become more efficient. A reduction in settlement risk may be dependent on whether participants have access to increasingly advanced technology, which is able to withstand the extra demands of a shortened settlement window. Delivery vs Payment (DvP) will be challenging to achieve without significant changes to how the precious metals markets operate Where different legs of a trade are transacted together but settled separately, there is a risk of settlement failure if the metal is settled but the corresponding currency payment is never made. Having DvP would reduce the risk of settlement failure as both assets in the trade would be exchanged simultaneously.
The use of DvP is limited across the precious metals market. DvP would require the ability to process a single synchronized message process across the currency and metal leg. In the current market, there are operational challenges in combining commodity leg and currency leg messages as they are sent through different systems. The settlement infrastructure for metals and the currency leg are also entirely separate. To change this in isolation, the market would either change the time that metals or the currency leg are settled. There are challenges to implementing DvP separate to the fundamental changes to infrastructure that may derive from digital solution as discussed in Section 5.
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