Journal of Financial Market Infrastructures

Manmohan Singh
International Monetary Fund

This third (summer) issue of Volume 11 of The Journal of Financial Market Infrastructures offers three papers and underscores the journal’s commitment to embracing the role of new technologies (including digital money) and the changes in global payments systems, among other topics. For readers who may have missed our winter and spring issues, The Journal of Financial Market Infrastructures has a new editorial team, comprising myself as editor-in-chief alongside deputy editors Jorge Cruz from the University of Western Ontario and Anneke Kosse from the Bank for International Settlements.

This issue includes one Forum paper (primarily reviewed by the editorial team) as a thought piece to encourage analytical research, and two analytical papers (refereed via the standard review process by at least two independent referees).

The Forum paper, “Financial industry adoption of distributed ledger technologies: implications for central bank money settlement” by Holger Neuhaus and Mirjam Plooij, discusses the ramifications of a potential industry uptake of distributed ledger technology (DLT) for wholesale financial transactions, and it looks at how, in preparation for such a scenario, the Eurosystem is exploring various ways in which wholesale financial transactions recorded on DLT platforms could be settled in central bank money.

The first research paper in the issue, “Correlation breakdowns, spread positions and central counterparty margin models”, is by David Li, Fernando Cerezetti and Roy Cheruvelil. The analytics of the paper, via a case study on energy commodities, suggest that breakdowns may be more frequent, and behave differently, than traditionally postulated. Traditional risk models may not be fully equipped to capture such breakdowns, and any risk model that lacks the capacity to deal with the nonstationarity of price series may represent them inappropriately. The authors use an approach that combines a generalized autoregressive conditional heteroscedasticity model with dynamic conditional correlation (GARCH-DCC) to accommodate such properties.

The issue’s second research paper, “The market liquidity of interest rate swaps” by Ismael Alexander Boudiaf, Immo Frieden and Martin Scheicher, studies the dynamics and drivers of market liquidity in Euro Interbank Offered Rate (Euribor) interest rate swaps. After applying linear regressions to determine the drivers of variation in liquidity, the authors find that their liquidity measures are significantly related to monetary policy, market-wide fixed-income liquidity, Euribor volatility and dealer behavior.

We encourage regular submissions, and opportunities are available for selected papers to be presented at conferences or seminars for the dissemination of key messages. Papers that appeared in the winter and spring issues were presented at a recent joint seminar by the Bank for International Settlements Innovation Hub Hong Kong Centre and The Journal of Financial Market Infrastructures and at the International Monetary Fund.

The landscape of financial market infrastructures continues to change rapidly. Well over a decade after its launch, the journal continues to provide its readership with a selection of cutting-edge papers, novel ideas and analytics that underpin research, especially in the areas of

• distributed ledger technologies, machine learning and artificial intelligence, and their impact on financial market infrastructures;
• payment, settlement and clearing systems;
• digital money (both private and public) and its impact on central bank operations and central bank balance sheets;
• tokenized deposits and stablecoins; and
• nonbank payment service providers and access to central bank payment rails.

Jorge, Anneke and I very much hope you will enjoy reading these papers and we welcome suggestions on any topics that would be of particular interest to our readers.