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Capital Markets are a way to connect investors and borrowers for long term lending provision of capital. A way to invest in enterprises, so that funds from investors are put to productive use. Investors or lenders can be individuals or other entities. Borrowers are typically companies companies and governments. Although the term market applies to exchanges and associated infrastructure; financial intermediaries like banks connect the various parties together. Investors are compensated directly by borrowers or are rewarded by appreciation of the are markets for long-term securities, including . Capital Markets include the stock market and the bond market dealing with equities, bonds, mutual funds including ETFs, and credit markets. These along with the attendant markets are the way to invest in enterprises, so that funds from investors are put to productive use in Enterprises. Mechanisms to hedge or leverage the risk of this exposure for both Enterprises and Investors are also available through these Markets.They can also include derivatives.
Why should this group be launched?
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We have a Trade Finance SIG in Hyperledger. Trade Finance deals with financing international and domestic trade primarily by banks. There is exposure to the primary documents connected to trading of goods and services. On the other hand, the Financial Capital Markets SIG will focus on Markets which deal in securities that are fungible, open, regulated heavily and have a lot more flow and participation. Please see the scope section below to get a better feel for the Financial Capital Markets proposal.
Scope
The Financial Capital Markets SIG will study how Hyperledger DLTs should interact with Financial Capital Markets use cases. From issuance and trading of all instruments (primary market) to secondary markets for the continued market-making, dispersal of risk and other activities; regulation; capital requirements; traceability, pre-trade analysis and valuation; post-Trade settlement with custody and bookkeeping. Are there architecture, identity, performance related considerations specific to Financial Capital markets and DLTs. These are questions to be answered by this SIG. In the beginning we attempt to develop a taxonomy of the domain by viewing it in a couple of dimensions.
We will not discuss commodities and currency markets; although there are integration points with respect to hedging. We will not discuss digital currencies nor money supply. No macro economic or general policy discussions. Payment systems remain a question mark. Retail banking also a question mark. Even if we do not discuss these, we may have to build bridges to them.
Just like the Healthcare SIG, this might have a number of sub-groups to be decided by the participants and by the natural subdomains, but the Financial Capital Markets SIG can remain the overall umbrella over these sectors. The use of DLTs which is a collaborative and unifying technology can also knit together these subdomains under the Financial Capital Markets SIG.
What are the oracles (external sources) needed, pricing/market data, analytics- rules and regulations, continuous KYC and other concerns and emerging trends are also the domain of the Financial Capital Markets SIG.
Work Products
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Develop a simple taxonomy of Financial Capital Markets; first concentrating on the flow and fungibility of securities (bonds and stocks generalized to derivatives, futures and currency markets) ; issuance, trading, settlement, custody and corporate actions (payment of dividends, shareholder communications, buy backs etc).
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Performance and scale WG to look at generating benchmarks in the Financial Capital Markets phase. What are the architectural implications (architecture WG). Banking & KYC with IDWG. Look at already developed use cases in this sector in Hyperledger DLTs (Fabric, Sawtooth, Iroha, Quilt, Burrow). Collaborate with the Public Sector SIG for getting a window into Financial Capital Markets regulation.
Look at the work being done by the Trade Finance SIG which covers a specific sector of the financial markets.
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