Do we need to change thinking on value-date i.e. the date on which a transaction actually takes place? We’d love to hear your views.
Here at Fnality, we’re laying the foundations for a new payment system to deal with tokenised markets. Initially, it will operate in CAD, EUR, GBP, JPY and USD, creating a new settlement asset to allow on-chain payment. This has the potential to fundamentally change the way Payment versus Payment (PvP) and Delivery versus Payment (DvP) settlement works; real time, atomic, 365/24/7. Reduced counterpart and credit risk, improved liquidity management, possible 24/7 settlement; what’s not to like?
Well, as we debated what an operating day would look like in each of the currencies Fnality will operate in, a fundamental question came up;
In a 24/7 real time set up, what is the meaning of value-date? In fact, if we are unconstrained by batch processing and payment deadlines, would we even need an end of day and a value date?
One line of argument was that, in a new system, the concept of 'value-date' still needs to exist because:
So, knowing that end-of-day for banks is roughly 21:00 locally, we concluded that ending the day and rolling the date at 21:00 locally was a good place to start.
We are not the only ones in the market to start considering this issue. In a recent paper, from the GFMA: First Steps Towards 24/7 FX Settlement Capabilities - Expanding Payment versus Payment (PvP) opportunities there is a suggestion of adopting universal value-date for FX trades, i.e. April 8th would mean the same 24hr period in every currency / country.
Which gets us to the thinking we would like to test. We are keen to push the boundaries of what is possible, but recognise that ideal is not always practical.
Would you help us check our thinking by sharing whether you agree / disagree on the following points:
1. Regardless of whether a payment systems has the potential to operate on 24/7 basis, the concept of value-date and end-of-day will need to existThose who prefer can direct email to olaf.ransome@fnality.org