INTERVIEW | Through the last five years, securities infrastructures and other operators have seen growing volumes and complexities – supporting the case for looking to radically new solutions based on digital assets in some form. However, as these solutions have been slow to succeed in the market, operations veteran Olaf Ransome sees the industry’s aches getting worse. Read this fourth lookback article in our series.
PostTrade 360° Copenhagen on 11–12 October 2023 will mark the five-year celebration of the brand. Olaf Ransome joins to moderate panels on liquidity management, respectively on the securities-market “sell side” and investor side. Find the conference website here.
This five-year review interview is our fourth in a series.
“We are clear on the promise of what digital assets might bring and we can observe some benefits. But we haven’t yet got that path right, because we haven’t got the assets issued and we haven’t got the means of payment.”
Referring to himself as the Bankers’ Plumber, Olaf Ransome has a decades-long history with large banks such as Goldman Sachs and Credit Suisse. In recent years, however, he has become a curious explorer of distributed ledger technology and its potential for solving old problems in a new way.
My 5-year observations
Olaf Ransome, “The Bankers’ Plumber”
• Digital assets haven’t come as quickly as we would like – in fact, frustratingly slowly.
• Growing liqidity challenge on many fronts: clearing margin, FX volumes, etc.
• Time pressure from more instant payments, shorter settlement cycles, etc.
He has worked with ventures including Fnality – a big-bank-backed startup determined to enable wholesale payments settled at central banks – as well as SIX Digital Exchange, SDX.
“Jeez, guys …”
“The more I look at our infrastructure in its current state, the more I see there are many threats to our ability to manage liquidity. So, five years ago, we were seeing that promise – of digital assets and a solution for the means of payment. Now, five years later, I look at it and go ‘jeez, guys, this is getting urgent’,” says Olaf Ransome.
The rapid transition to T+1 settlement raises one such point of urgency, but he also sees growing risk in the area of foreign-exchange settlement, despite the industry’s establishment of the settlement risk-mitigating service CLS two decades ago.
“Regulators jumped up and down and said ‘hey, you banks should sort out this settlement process for FX’ – and at that time, the entire FX market was $1.2 trillion per day. Today, the amount of FX not going through CLS is $3.6 trillion, meaning $7.2 trillion of money is moving around in a bilateral way, with settlement risk.”
How much is enough?
Yet another challenge is posed as more stuff is being cleared, either through CCPs or bilateral margin payments, and there is a pressure for more instant payments. With these types of liquidity demands, it is difficult to predict what could hit you.
“As I look at this liquidity picture, I see we have many stresses and more to come. So while we haven’t got there yet on the promise of digital, the demands and complexity have grown and continue to grow – particularly the pressures on liquidity”
To explain the slow pickup of DLT in countering all these risks, Olaf Ransome likens the benefits of the new technology to those of a new car. Outshining your old car is not enough to justify the investment, as long as your old one does the job. So, instead, are there entirely new applications that could open for the breakthrough? Again, Olaf Ransome sees strong rationale but weak growth so far.
“I think my favourite example on the asset side is short term debt, for a variety of capital reasons and access reasons for the clients, but we still have a lack of activity. In the other part, I still fundamentally believe that money – the means of payment – is the enabler to everything else. If I could pay in a different way, then I could rearrange the way we settle assets but again, we are not there yet. Regulators are struggling as to how to set that up, and my former colleagues at Fnality have found themselves on a long road. The permissions are just around the corner … except you’re not quite sure which corner.”