Global Markets Advisory Committee July 17, 2023

Commissioner

Caroline D. Pham

Commissioner

Christy Goldsmith Romero

Commissioner

Kristin N. Johnson

Commissioner

Summer K. Mersinger
Global Markets Advisory Committee

OPENING REMARKS
Global Markets Advisory Committee

Keynote Speaker: Lynn Martin, President, NYSE Group 

and Chair, ICE Fixed Income & Data Services
GMAC 

Global Market Structure Subcommittee

7/17/2023 - Update

6/2/2023
5

UST Outstanding vs Dealer Balance Sheet

TU Futures – Cost to Sweep 5k Contracts UST Futures Volumes

Commodity Market Volatility

GMAC: Global Market Structure Subcommittee

Source: Goldman Sachs Source: Morgan Stanley

Source: Bloomberg LP Source: FRB, JPM Research, SIFMA
6

GMAC: Global Market Structure Subcommittee

Subcommittee Work Plan

• Provide recommendations for global standards and best practices for market volatility 

controls and circuit breakers 

• Examine Treasury market reform impact on derivatives markets, including (i) 

recommendations for cross-margining between futures and cash markets and (ii) changes 

to derivatives market structure from cash market proposals 

• Provide recommendations to improve liquidity across asset classes, including commodities, 

rates, and credit markets, with respect to capital, clearing, and collateral requirements 

• Examine role of derivatives for proper asset-liability management and functioning of funding 

markets

• Provide recommendations for international alignment of trading and clearing obligations to 

address market fragmentation, including swap execution facility (SEF)/multilateral trading 

facility (MTF) requirements 
Global Markets Advisory Committee

PANEL I: Treasury Markets Reform: Implications For 

and Lessons Learned from Derivatives Markets
S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L

July 17, 2023

GLOBAL MARKETS ADVISORY COMMITTEE PANEL I

JPMorgan Chase & Co.

U.S. Commodity Futures Trading Commission |
Liquidity is concentrated in the most recently issued 

securities: the on-the-run market is 1% of total Treasuries 

outstanding but over 57% of average daily turnover

Treasury future block dissemination price impacts have varied 

over the years and is largest in times of stress

Impact in price (in 32nds, negative is against liquidity provider)

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

-15 -10 -5 0 5 10 15 20 25 30

Minutes around block trade report

2020

2021

2022

Source: TBAC

The number of Futures Commission Merchants (FCMs) holding 

customer funds for cleared swaps has declined significantly 

over the last decade

Source: FIA

Source: JPM Research, TRACE

1 2

4

Institution Type 2020 2021 2022 Q1 2023*

Foreign Investors 33.3% 33.9% 33.9% 33.5%

Federal Reserve 24.0% 26.5% 23.4% 22.1%

Money market funds 11.2% 7.9% 4.9% 4.6%

Household 5.4% 2.0% 7.2% 9.3%

Money managers 6.0% 7.0% 6.3% 6.2%

Banking institutions 5.5% 7.2% 7.3% 6.6%

Pension funds 3.8% 3.9% 3.6% 3.6%

State and local govt 4.5% 5.8% 6.8% 6.9%

Others 1.9% 1.7% 1.8% 1.7%

Insurance companies 1.8% 1.8% 1.8% 1.8%

ETFs 1.2% 1.4% 1.9% 2.0%

Broker dealers 1.0% 0.4% 0.8% 1.2%

Corporate 0.3% 0.3% 0.4% 0.4%

Treasury ownership is concentrated. Foreign investors and the 

FRB own a combined 55% of Treasuries outstanding

Source: JPM Research, Federal Reserve

3

Treasury markets reform: implications for and lessons learned from 

derivatives markets

1
Disclaimer

JPMorgan Chase Bank, N.A. is authorized by the Office of the Comptroller of the Currency and is a member of the FDIC. J.P. Morgan Securities LLC (“JPMS”) is a registered broker-dealer and 

registered futures commission merchant subsidiary of JPMorgan Chase & Co. and a member of FINRA, NFA, NYSE and SIPC. J.P. Morgan Securities plc (“JPMS plc”) is a member of the London 

Stock Exchange, is authorized by the Prudential Regulation Authority and is regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Distributed in Singapore by J.P. 

Morgan Securities Singapore Private Limited (Co. Reg. No.: 199405335R), an entity regulated by the Monetary Authority of Singapore and the Singapore Exchange Derivatives Trading Limited. 

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Securities Exchange and Tokyo Financial Exchange. Distributed in Hong Kong by J.P. Morgan Broking (Hong Kong) Limited (CE numberAAB027), an entity regulated by the Hong Kong Securities 

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238065), an entity regulated by the Australian Securities and Investments Commission and the Australian Securities Exchange Limited. Distributed in New Zealand by J.P. Morgan Markets 

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(Taiwan) Limited, a market participant and a general clearing member of the Taiwan Futures Exchange Corporation. Distributed in Thailand by J.P. Morgan Securities (Thailand) Limited, a member 

of the Thailand Futures Exchange. Clients should contact analysts at and execute transactions through a J.P. Morgan entity in their home jurisdiction unless governing law permits otherwise. 

“J.P. Morgan” is the marketing name for JPMorgan Chase & Co., and its subsidiaries and affiliates worldwide. 

Preparation and Accuracy Disclosure

This commentary has been prepared by personnel of one or more affiliates of J.P. Morgan and is not the product of J.P. Morgan’s Research Department. It is not a research report and is not 

intended as such. Opinions and commentary expressed herein may differ from the opinions and commentary expressed by other areas of J.P. Morgan, including its Research Department. The 

information contained herein is as of the date referenced above and J.P. Morgan does not undertake any obligation to update s uch information. Additional information is available upon request. 

Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracyexcept with respect to any disclosures relative to JPMS and/or 

its affiliates. 

To the extent referenced herein, all market prices, data and other information are not warranted as to completeness or accuracy and are subject to change without notice. This commentary does 

not purport to contain all of the information that an interested party may desire and provides only a limited view of the regulatory paradigm affecting a particular market or industry utility. 

Intended Purpose Disclosure

This commentary is intended for discussion and informational purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, other materials prepared and 

provided by J.P. Morgan on the matters covered herein. 

This commentary is not intended as a recommendation or an offer or solicitation to enter into any transaction or for the purchase or sale of any security or financial instrument. Transactions 

involving securities and financial instruments mentioned herein (including futures, options and swaps) may not be suitable for all investors. 

This commentary does not constitute legal, credit, tax, regulatory and/or accounting advice by or on behalf of J.P. Morgan, and nothing in this commentary should be construed as such. No 

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responsibility or liability whatsoever to any person in respect of such matters. 

© 2023 JPMorgan Chase & Co. All rights reserved.

2
11

UST Futures Positioning

GMAC: Treasury Markets Reform Panel

UST futures: asset manager long positions have largely been absorbed by levered funds’ 

short positions
12

Who are Tradition?

• Tradition is a global market intermediary specialising in wholesale markets across all major asset classes

• Tradition occupies a market leading position as a liquidity platform for USD GC Repo markets, Treasury and USD 

Interest Rate markets 

• Tradition is an expert in operational and technical market structure issues as they relate to Pre-trade, trade and Posttrade functions

• Tradition are aggregators of liquidity not providers or users of liquidity
13

What have we learnt at Tradition ?

Functions

• Clearing

• Reporting

It’s all about the plumbing 

Implementation

• It takes time 

• It needs to be efficient and quick 

• New Processes = New Risks (CCP Basis)

• Change management (Libor Transition) 
14

The Plumbing 

Regulated Venue

CLOB Voice Auction

Clearing

Pre-Trade 

Reporting

Post Trade 

Reporting

STP
15

Stuart Giles

NY CSO 

E: stuart.giles@tradition.com 

W: + 212 238 5999

M: +1 573 844 4784

The information herein may have been obtained from various sources. Any opinion expressed may be that of the sender only, is subject to change without notice and should be independently evaluated. Nothing herein constitutes investment advice or an offer, or solicitation of an offer, to buy or sell any financial

product. Any data consists of purely indicative prices and should not be relied upon to revalue any commercial positions heldby any recipient. Tradition makes no warranty that the data represent or indicate prices at which transactions may be or have been made by any Tradition Group company. To the maximum

extent of the law, Tradition accepts no responsibility for, and cannot and does not warrant the integrity, accuracy, quality, completeness, merchantability or suitability for a particular purpose or requirement of the information or data, even if arising out of the negligence of Tradition or otherwise. Tradition accepts no

liability for any direct, indirect or other consequential loss arising out of any use of the information contained in this document or any omission from it. This communication is directed at Eligible Counterparties and Professional Clients as defined by the FCA. It is not for distribution to nor should it be relied upon by

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registered in England at Beaufort House, 15 St Botolph Street, London EC3A 7QX; authorised and regulated by The Financial Conduct Authority. VAT No: GB 365 4639 27 except TFS-ICAP GB 766 0854 05.
Global Markets Advisory Committee

MEMBER DISCUSSION
Global Markets Advisory Committee

BREAK
Global Markets Advisory Committee

PANEL II: Swap Block Implications on Market 

Structure
CFTC Global Markets Advisory Committee

July 2023
Block Trade Thresholds and Volume Cap Sizes Methodology

What are Block Trade Thresholds and Volume Cap Sizes? 

• Block Trade Threshold: The notional threshold that enables a swap to receive designated delay from real-time public dissemination (i.e., 15 mins or longer 

depending on the type of swap and type of counterparties). If the swap is subject to the trade execution requirement, reaching the block threshold would 

also enable the swap to be executed off exchange but subject to the rules of a SEF (e.g., RFQ-to-1 vs RFQ-to-3). 

• Volume Cap Size: The notional threshold to which the public reporting of the swap is capped; the full size of the swap is never disseminated to the public. 

CFTC 2013 Final Block Rules

• In May 2013, the Commission finalized rules that established block trade thresholds and volume cap sizes for all asset classes and that use a calculation 

methodology that relies on notional amounts. The 2013 rules required the CFTC to follow a phased-in approach for determining minimum block sizes and 

initially apply a 50% notional amount calculation. 

• Then, after an SDR had collected at least one year of data, the 2013 rules required the CFTC to determine the minimum block size using a 67% notional 

amount calculation for IRS, CDS, and certain FX and commodities swaps. Under the 2013 rules, the volume caps were set to initially mirror the block 

thresholds and then intended to move to a 75% notional amount calculation when the block thresholds transitioned to the 67% calculation.

• The rules were designed to re-set the block thresholds and volume caps using the 67% and 75% methodologies, respectively, on an annual basis using the 

previous year’s SDR data. However, the CFTC never transitioned to those methodologies—until now. 

CFTC 2020 Final Block Rules

• In 2020, the CFTC proposed and finalized rules that amended the swap categories used to establish block thresholds and volume caps. The CFTC also 

required block thresholds and volume caps for IRS, CDS and certain FX and commodities swaps to be determined using the 67% and 75% notional amount 

calculations, respectively. 

• Pursuant to the 2020 rules, in April of this year, the Commission published the revised thresholds for all asset classes on their website, with a compliance 

date of December 4, 2023.

CFTC Global Markets Advisory Committee
Block Trade Thresholds and Volume Cap Sizes Methodology

What is the methodology? 

• All publicly reportable swap transactions within a specific swap category are selected (and converted to the same currency, if applicable). All 

notional amounts are summed up and the total sum is multiplied by 67%. All transactions are ranked by notional from smallest to greatest. The 

cumulative sum of the observations is calculated until the cumulative sum is equal to or greater than the 67% of the total notional amount 

calculated in the prior step. The transaction notional associated with that observation is then selected and set as the threshold.

CFTC-Stated Policy Objectives

When proposing the notional amount calculation in 2012, the CFTC outlined the following policy objectives:

• “The proposed 67-percent notional amount calculation is intended to ensure that within a swap category, approximately two-thirds of the sum 

total of all notional amounts are reported on a real-time basis”

• “[T]his approach would ensure that market participants have a timely view of a substantial portion of swap transaction and pricing data to 

assist them in determining, inter alia, the competitive price for swaps within a relevant swap category.”

• “[The CFTC] anticipates that enhanced price transparency would encourage market participants to provide liquidity (e.g., through the posting 

of bids and offers), particularly when transaction prices moves away from the competitive price. The Commission also anticipatesthat 

enhanced price transparency thereby would improve market integrity and price discovery, while also reducing information asymmetries 

enjoyed by market makers in predominately opaque swap markets.” 

• “In the Commission’s view, using the proposed 67-percent notional amount calculation also would minimize the potential impact of real-time 

public reporting on liquidity risk.” 

• “The Commission believes that its methodology represents a more tailored and incremental step . . . towards achieving the goal of ‘a vast 

majority’ of swap transactions becoming subject to real-time public reporting.”

21 CFTC Global Markets Advisory Committee
Current Block Trade Thresholds and Volume Cap Sizes for Interest Rate Swaps 

CFTC Global Markets Advisory Committee

Currency group Tenor

50% Notional 

(millions)

Tenor ≤ 46 Days 6,400

46D < Tenor ≤ 3M 2,100

3M < Tenor ≤ 6M 1,200

6M < Tenor ≤ 1Y 1,100

1Y < Tenor ≤ 2Y 460

2Y < Tenor ≤ 5Y 240

5Y < Tenor ≤ 10Y 170

10Y < Tenor ≤ 30Y 120

Tenor > 30Y 67

Tenor ≤ 46 Days 2,200

46D < Tenor ≤ 3M 580

3M < Tenor ≤ 6M 440

6M < Tenor ≤ 1Y 220

1Y < Tenor ≤ 2Y 130

2Y < Tenor ≤ 5Y 88

5Y < Tenor ≤ 10Y 49

10Y < Tenor ≤ 30Y 37

Tenor > 30Y 15

Tenor ≤ 46 Days 230

46D < Tenor ≤ 3M 230

3M < Tenor ≤ 6M 150

6M < Tenor ≤ 1Y 110

1Y < Tenor ≤ 2Y 54

2Y < Tenor ≤ 5Y 27

5Y < Tenor ≤ 10Y 15

10Y < Tenor ≤ 30Y 16

Tenor > 30Y 15

Super-Major (USD, EUR, GBP, JPY)

Major (AUD, CHF, CAD, ZAR, KRW, SEK, NZD, NOK, 

DKK)

Non-Major
Revised Block Trade Thresholds for Interest Rate Swaps

CFTC Global Markets Advisory Committee 23

Block Trade Thresholds 

Tenor

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

Tenor ≤ 46 Days 8,800 38% 7,800 22% 5,500 -14% 1,200 -81% 2,300 5% 3,400 55% 3,700 1509% 1,300 465%

46D < Tenor ≤ 3M 3,300 57% 3,100 48% 4,700 124% 1,900 -10% 1,300 124% 1,050 81% 550 139% 420 83%

3M < Tenor ≤ 6M 1,100 -8% 700 -42% 2,500 108% 1,800 50% 2,100 377% 280 -36% 500 233% 410 173%

6M < Tenor ≤ 1Y 1,600 45% 1,200 9% 1,300 18% 1,050 -5% 550 150% 400 82% 380 245% 120 9%

1Y < Tenor ≤ 2Y 850 85% 550 20% 360 -22% 450 -2% 290 123% 210 62% 350 548% 83 54%

2Y < Tenor ≤ 5Y 400 67% 270 13% 190 -21% 210 -13% 160 82% 130 48% 160 493% 47 74%

5Y < Tenor ≤ 10Y 290 71% 200 18% 150 -12% 180 6% 100 104% 59 20% 56 273% 31 107%

10Y < Tenor ≤ 30Y 210 75% 130 8% 98 -18% 94 -22% 39 5% 37 0% 34 113% 23 44%

Tenor > 30Y 260 288% 56 -16% 56 -16% 42 -37% 22 47% 18 20% 0 -100% 0 -100%

USD EUR GBP JPY CAD AUD BRL CZK Block Trade Thresholds 

Tenor

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

Tenor ≤ 46 Days 0 -100% 0 -100% 250 9% 0 -100% 410 78% 0 -100% 2,000 -9%

46D < Tenor ≤ 3M 420 -28% 480 -17% 320 39% 700 204% 310 35% 950 64% 1,300 124%

3M < Tenor ≤ 6M 47 -89% 310 -30% 280 87% 370 147% 210 40% 110 -75% 500 14%

6M < Tenor ≤ 1Y 140 -36% 220 0% 200 82% 210 91% 120 9% 270 23% 270 23%

1Y < Tenor ≤ 2Y 84 -35% 120 -8% 140 159% 110 104% 57 6% 160 23% 140 8%

2Y < Tenor ≤ 5Y 50 -43% 68 -23% 74 174% 51 89% 37 37% 79 -10% 66 -25%

5Y < Tenor ≤ 10Y 31 -37% 38 -22% 35 133% 24 60% 17 13% 78 59% 48 -2%

10Y < Tenor ≤ 30Y 22 -41% 44 19% 0 -100% 25 56% 8 -50% 32 -14% 28 -24%

Tenor > 30Y 0 -100% 0 -100% 0 -100% 0 -100% 0 -100% 0 -100% 0 -100%

ZAR KRW INR MXN CLP SEK NZD
Revised Volume Cap Sizes for Interest Rate Swaps 

CFTC Global Markets Advisory Committee 24

Volume Caps Sizes 

Tenor

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

Tenor ≤ 46 Days 13,000 103% 8,700 36% 6,000 -6% 1,200 -81% 2,300 5% 3,800 73% 4,900 1860% 1,300 420%

46D < Tenor ≤ 3M 4,100 95% 3,800 81% 5,200 148% 2,200 5% 1,600 176% 1,300 124% 850 240% 430 72%

3M < Tenor ≤ 6M 1,600 33% 900 -25% 3,000 150% 1,900 58% 3,200 627% 350 -20% 600 140% 420 68%

6M < Tenor ≤ 1Y 2,100 91% 1,500 36% 1,700 55% 1,400 27% 700 180% 550 120% 600 140% 140 -44%

1Y < Tenor ≤ 2Y 1,100 139% 650 41% 550 20% 600 30% 370 48% 260 4% 450 80% 120 -52%

2Y < Tenor ≤ 5Y 550 129% 350 46% 250 4% 270 13% 200 100% 170 70% 210 110% 59 -41%

5Y < Tenor ≤ 10Y 410 141% 260 53% 220 29% 230 35% 140 40% 71 -29% 73 -27% 36 -64%

10Y < Tenor ≤ 30Y 270 125% 190 58% 140 17% 150 25% 41 -45% 50 -33% 44 -41% 26 -65%

Tenor > 30Y 340 353% 73 -3% 75 0% 45 -40% 25 -67% 18 -76% 0 -100% 0 -100%

USD EUR GBP JPY CAD AUD BRL CZK Volume Caps Sizes 

Tenor

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

New 

(millions)

Change 

(%)

Tenor ≤ 46 Days 0 -100% 0 -100% 250 0% 0 -100% 600 140% 0 -100% 2,300 5%

46D < Tenor ≤ 3M 450 -22% 480 -17% 400 60% 900 260% 410 64% 1,050 81% 1,600 176%

3M < Tenor ≤ 6M 47 -89% 340 -23% 320 28% 600 140% 220 -12% 110 -75% 510 16%

6M < Tenor ≤ 1Y 160 -36% 250 0% 250 0% 260 4% 120 -52% 340 36% 300 20%

1Y < Tenor ≤ 2Y 120 -52% 140 -44% 170 -32% 130 -48% 72 -71% 220 -12% 160 -36%

2Y < Tenor ≤ 5Y 62 -38% 87 -13% 120 20% 62 -38% 43 -57% 99 -1% 81 -19%

5Y < Tenor ≤ 10Y 38 -62% 46 -54% 36 -64% 32 -68% 21 -79% 120 20% 67 -33%

10Y < Tenor ≤ 30Y 29 -61% 56 -25% 0 -100% 30 -60% 12 -84% 36 -52% 29 -61%

Tenor > 30Y 0 -100% 0 -100% 0 -100% 0 -100% 0 -100% 0 -100% 0 -100%

ZAR KRW INR MXN CLP SEK NZD
Current and Revised Block Trade Thresholds and Volume Cap Sizes for Credit 

Default Swaps

CFTC Global Markets Advisory Committee 25

Block Trade Thresholds 

Current

(millions)

New 

(millions)

Change 

(%)

CDX IG 110 250 127%

CDX HY 26 75 188%

CDX EM 32 52 63%

iTraxx Europe 110 265 141%

iTraxx Crossover 26 69 165%

iTraxx Senior Financial 110 350 218%

Volume Caps Sizes 

Current 

(millions)

New 

(millions)

Change 

(%)

CDX IG 110 300 173%

CDX HY 100 100 0%

CDX EM 100 95 -5%

iTraxx Europe 110 386 251%

iTraxx Crossover 100 104 4%

iTraxx Senior Financial 110 510 364%
Market Observations
Source: JPM DataQuery

Market depth: cash market depth is the average of the top 3 bids and offers on hot-run Treasuries in the inter-dealer broker CLOB, averaged between 8:30am and 10:30am daily

Market Depth vs Volatility

0

50

100

150

200

250

300

350

0

2

4

6

8

10

12

21-Feb-2012 21-Feb-2013 21-Feb-2014 21-Feb-2015 21-Feb-2016 21-Feb-2017 21-Feb-2018 21-Feb-2019 21-Feb-2020 21-Feb-2021 21-Feb-2022 21-Feb-2023

10Y Cash Market Depth vs Volatility

Implied daily volatility from 1m10y swaption market in basis points (LHS) 10y cash market depth, 3M DMA (RHS)
Market Depth – UST Futures Top of Book Liquidity

Source: GS Marquee PlotTool Pro as of 26 Jan 2023, past performance is not indicative of future returns
Source: BBG

New forms of Pre-Trade Price Transparency – Streaming Quotes
Swap Block Implications on 

Market Structure:

SEF Perspective

Adam Lister

Interest Rate Swaps Electronic Trading Product Manager

Bloomberg SEF LLC

CFTC Global Markets Advisory Committee

Jul 17, 2023
Benefits of SEF Electronic Trading

o Pre-Trade Transparency

o Standardized Pricing (Clearing Mandate)

o Impartial Access to Liquidity Sources (Pre-Trade Credit 

Check)

o Ease of Execution

o Hyper-efficient Post Trade Processing
Made Available to Trade IRS BSEF Activity

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 H1

BSEF IRS % MAT by Notional

MAT Non-MAT

Source Bloomberg SEF LLC
US$ IRS MAT Block Size Activity

0

20

40

60

80

100

120

140

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 H1

US$ IRS MAT Block Size by Notional vs YLDVOL US Index (Volatility)

Above Block Below Block YLDVOL US Index

Source Bloomberg SEF LLC
Average Number of Dealers in Competition

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

February

April

June

August

October

December

February

April

June

August

October

December

February

April

June

August

October

December

February

April

June

August

October

December

February

April

June

August

October

December

February

April

June

August

October

December

February

April

June

August

October

December

February

April

June

August

October

December

2014 2015 2016 2017 2018 2019 2020 2021

Average Dealers in Comp for RFQ US$ IRS MAT Outright (BSEF)

Below Block

Above Block

Source Bloomberg SEF LLC
CDS MAT Block Size Activity

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 H1

BSEF CDS MAT % Block Size by Notional

Above Block Below Block

Source: Bloomberg SEF LLC
Conclusions

o Decrease in MAT IRS Activity as Percentage of Total Activity – SEFs used 

for more than MAT

o Downward Trend in Block Size IRS Activity as Percentage of Total Activity

o Reduced Block Size Activity in IRS but increasing number of dealers in 

competition

o Status of SOFR trading off-facility (block and non-block) not yet easily 

observable versus SEF data. Difficult to predict impact of proposed 

threshold increase without knowing ‘how’ they’re traded

o Data in SOFR to become more readily available by SEF from August as 

MAT trade execution requirement enters into force to help understand 

behaviors
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legal advice or an offer to buy or sell securities.

TW SEF SWAPS 

BLOCK SIZE ANALYSIS
Rates Volatility and TW SEF Block Trades

• Below chart shows the ICE BofA MOVE Index, a gauge of treasury volatility, versus the percentage of trades that were over block size on the TW 

SEF platform

• Chart details both the original block thresholds that were implemented in 2012, as well as the proposed thresholds put forward

• In periods of sustained high volatility, the amount of block trades traded and processed on TW SEF is seen to decrease

• From Jan 2019-Dec 2020, the average amount of block trades was 8% versus Jan 2022-Jun 2023 of 4%

% of tickets traded, spot effective, on-SEF, MAT designated tenors
RFQ Trading – Block USD IR Swaps TW SEF

• The percentage of trades that have been in-comp to one or two dealers has been marginally decreasing over the past four years, 

suggesting that market participants are more willing to put block trades in-comp with multiple dealers

• Under the original block sizes, the proportion of block trades sent RFQ < 3 has dropped off slightly from 70% in 2019-2020 to 60% 

when looking at 2022-2023 YTD. 

• With the new proposed block sizes the proportion of trades sent RFQ < 3 for the same time periods would be 82% (2019-2020) and 

69% (2022-2023)

• The chart below details the percentage of trades sent to one or two dealers, versus total block trades sent on platform. The chart details 

both the original block sizes as well as the same analysis with the CFTC’s proposed block sizes

% of tickets traded, spot effective, on-SEF, MAT designated tenors, block trades, comparing ticket count of RFQ < 3 as a percentage of all block trades
Implications on Market Structure
Source: E. Onur, D. Reiffen and H. Zhu (2017). Mechanism Selection and Trade Formation on Swap Execution Facilities: Evidence from Index CDS Trades

https://www.cftc.gov/sites/default/files/idc/groups/public/@economicanalysis/documents/file/oce_mechanism_selection.pdf

Effect of Trade Notional Size (y) on Optimal # of Dealers

(CDX)

Number 

of 

Dealers

= Trade Notional
Effect of Trade Notional Size (y) on Optimal # of Dealers

(CDX)

Our theoretical model of SEF trading emphasizes a fundamental trade-off when the 

customer exposes his order to more dealers: competition versus the winner’s curse. In our 

model of the RFQ mechanism, contacting more dealers increases both competition and the 

winner’s curse. 

...

Moreover, consistent with the winner’s curse, dealers’ spreads and customer’s transaction 

costs in RFQs are also higher if the customer selects more dealers than expected, although 

the economic magnitude of the estimate is rather small. 

Source: E. Onur, D. Reiffen and H. Zhu (2017). Mechanism Selection and Trade Formation on Swap Execution Facilities: Evidence from Index CDS Trades, (page 39-40)

https://www.cftc.gov/sites/default/files/idc/groups/public/@economicanalysis/documents/file/oce_mechanism_selection.pdf
Global Markets Advisory Committee

MEMBER DISCUSSION
GMAC Technical Issues Subcommittee update

July 17, 2023

Allison Lurton, General Counsel and Chief Legal Officer, FIA (Co-Chair) 

Tara Kruse, Global Head of Infrastructure, Data, and Non-Cleared Margin, ISDA (Co-Chair) 
Improve Trade Reporting for Market Oversight

Provide recommendations to improve international standardization and amalgamation of trade reporting for market 

oversight

• Global guidance and alignment on:

• Product identification using UPI 

• UTI uniqueness checks 

• Role of the Trade Repository re: UPI - processing facilitator or active enrichment 

• Provide validation standards for CDE beyond field/value guidance

• Addressing ISO implementation variances between reporting regimes 

• Identify standards/technology solutions that would improve trade data consistency and quality 

• Analyze the legal and/or regulatory hurdles that prevent policymakers from seeing market activity on a holistic 

basis, as well as potential solution to such hurdles. 

• Assess whether jurisdictional rewrite implementation differences could undermine the ability to amalgamate 

data in the future and recommend harmonization methods

GMAC Technical Issues Subcommittee update
Improve Efficiencies in Post-Trade Processes

Provide recommendations to improve efficiencies in post-trade processes including

• Improving collateral management to reduce cost and risk and improve liquidity management through:

• Data standards for collateral representation

• Development and use of standard operating procedures

• Elimination of manual processes – e.g., use of faxes for collateral release

• Increased automation

• Electronic/digital transaction confirmations

• Support DMIST initiatives regarding allocations and give-ups to reduce trade processing times

GMAC Technical Issues Subcommittee update
Global Coordination of Market Events 

Provide recommendations for global coordination of market events such as closures or drills

• Educate on benefits of coordinating scheduled market and bank/liquidity market closures 

• Recommendations regarding unexpected market disruptions:

• Expectations for regulator communication 

• Industry coordination to include information sharing across playbooks and points of connectivity

• Consider technical aspects of counterparty default scenario planning

• Standardize communication around outages

• Monitor CCP-lead global fire drill for default simulation 

• Support CFTC role in encouraging drills by emerging markets regulators 

• Raise preparedness on impact of a transition to T+1 settlement

• Consider development of a playbook for future potential U.S. debt ceiling disruptions

GMAC Technical Issues Subcommittee update
Cross-border Infrastructure Issues

Identify other infrastructure issues to address that impact cross-border activity and access to markets

• Cloud standardization regarding wide range of topics:

• Security

• Data exchange standards

• Industry Benefits

• Use of money transfer/ACH for payment to brokers

• Potential or existing access issues for clearing and trading 

• Any infrastructure issues identified through VM margining practices efforts at CPMI-IOSCO

GMAC Technical Issues Subcommittee update
GMAC Presentation:

Digital Asset Subcommittee

Overview & Objectives

Caroline Butler, Bank of New York Mellon

Sandy Kaul, Franklin Templeton
Why the Digital Asset Ecosystem Matters

Innovations in the enabling infrastructure of Web3 and digital assets continue to progress despite the onset of 

“crypto winter”, but projects in the space often underweigh safety, soundness and controls

Bitcoin Ethereum Expanding Ecosystem

2009 2015 2023

• Operates 24/7/365

• Globally accessible, public networks

• Permissionless access

• Near real-time payments/settlement 

• Immutable, distributed record-keeping

• Services enabled by programmable 

currencies and tokens

• Actions enabled by self-executing 

smart contracts

• Assets held in pseudo-anonymous 

digital wallets protected by crypto keys

• New composable and interoperable 

approach to software & token 

development

• New financial participation and asset 

utilization models

AppDevelopment 

& Hosting 

Platform

Smart Contract 

Management

Payment

Network/ 

Transaction 

Ledger

L2 Scaling 

Solutions & 

Private Side 

Chains

Staking

Pools

Layer 1 Blockchains

DEXES

DeFi Apps

NFTs

Oracle 

Networks

AppDevelopment 

& Hosting 

Platform

Smart Contract 

Management

Payment

Network/ 

Transaction 

Ledger

Payment

Network/ 

Transaction 

Ledger

As of June 2023, there were 21,300 active developers making code commitments monthly to 

open source Web3 ecosystem—a larger total than were active in the space in November 2021 

when crypto prices hit an all-time high1

Evolution of the Open Source Web3 Ecosystem

Economic Use Cases Few Many

Chart Source: Franklin Templeton Industry Advisory Services; (1) Developer Report: Analysis of Open-Source Crypto Developers by Electric Capital
Cross-Over of Digital Asset/Market Innovations

• Collateral Management & Financing: 

J.P. Morgan’s private Onyx chain 

enables participants to transfer 

tokenized MMF shares as collateral & 

to perform on-chain repo16

• Liquidity Pools, Trade Receivables 

& Structured Notes: Monetary 

Authority of Singapore’s Project 

Guardian has explored 1) trading in a 

permissioned liquidity pool; 2) 

tokenizing trade receivables; 3) issuing 

& servicing tokenized OTC structured 

notes 17

• Cash Payments: The RLN network 

looks to facilitate the transfer of 

tokenized deposits between financial 

institutions 18

• Settlement: Fnality, Canton Network, 

and DTCC’s Project Ion are each 

building DLT solutions that link asset 

registries with digital currencies for 

settlement 19

Tokenization of Physical & Digital 

Assets

• Gold: Tokenized gold assets 

surpassed $1.0 billion in combined 

market capitalization in April 20232

• Real Estate: Tokenized real estate 

made up 40% of the digital securities 

market accounting for nearly $200 

million as of September 20223

• Art: Prints of 4 of Andy Warhol’s most 

famous works are being tokenized and 

offered as security tokens that can be 

used in DeFi transactions4

• Music Royalties: The Chainsmokers5

issued a limited number of NFTs with 

the release of their new album and 

Diplo6released NFTs for his new song 

with both offerings allowing to fans to 

share in the artists’ future royalties; 

Rihanna’s producer released a limited 

set of NFTs offering a portion of his 

royalties for one of her top songs7

Tokenization of Registered Investment 

Vehicles

Exploration of Regulated, Digital 

Asset Use Cases

• 40 Act Funds: Franklin Templeton offers 

U.S. government money market fund 

(MMF) tokens8; Wisdom Tree has filed to 

offer 9 tokenized mutual funds via their 

Prime wallet9; Ondo is backing their 

stablecoin offering with shares in a U.S. 

government MMF10 ;Blackrock is 

tokenizing shares of their MMFs to use as 

collateral within JPM’s Onyx platform11

• Private Funds: KKR, Apollo, Hamilton 

Lane, and Partners Group tokenized 

shares of their private funds offerings12

• Securities: Societe Generale, Deutsche 

Bank, and BNP Paribas each issued a 

tokenized bond using public blockchain13; 

the European Investment Bank (EIB) 

issued digital bonds using Goldman 

Sachs’ Digital Tokenization Platform14

• Structured Loans: Santander issued a 

tokenized loan backed by agricultural 

commodities 15

Increasingly, innovations that originate in the crypto space are crossing over—recent reports suggest that the 

potential for tokenization of financial and real world assets may reach $4.6 trillion by 20301

Footnotes in appendix
Challenges & Opportunities with Digital Assets/Markets 

Digital assets and markets and their enabling infrastructure offer both challenges and opportunities

Rallying together as a global industry can help harness the potential of new technology and define 

guidelines for a 21st century financial ecosystem; Failure to address challenges and seize 

opportunities may result in loss of talent, regulatory arbitrage, and fragmented or siloed solutions

Current rules regulate an asset, not the 

potential use of the asset

Tokens can be both an asset and a store of value that can be 

bartered for other assets or services; moreover, tokens can be 

programmed to confer different rights to the holder; this offers 

the potential for a dynamic, use-based approach to oversight

Digital wallets secured by crypto keys 

co-mingle tokens representing different 

types of underlying assets 

Given the potential complexity of wallet holdings (that may be 

overseen by varying regulators), an opportunity may exist to 

solve for KYC/AML, digital identity and risk oversight at the 

wallet level rather than the individual or entity level

Distributed blockchains exchange 

tokens and payments in near-real time, 

24/7/365

By running a node, regulators can monitor transactions and 

wallets in real-time rather than identifying issues forensically; 

global, round-the-clock access to digital markets may allow for 

dynamic application of regulatory regimes 

Decentralized marketplaces and 

financial services offer permissionless 

access to participants

Access to certain investment products and services is today 

based on an accreditation system that links consumer 

sophistication to wealth levels—new digital asset models offer 

an opportunity to rethink and democratize this approach

Challenges Opportunities
High Level Principles & Plan

Guiding Principles:

• Stay true to the potential of the 

technology infrastructure and its ability 

to support new approaches to financial 

markets 

• Base considerations on the optimal use 

of the new infrastructure, not on 

whether delivery will occur on private 

or public blockchains

• Think broadly about the optimal 

outcomes for the industry and do not 

limit recommendations to matters that 

currently sit within the CFTC mandate

• Envision opportunities independent of a 

participant’s existing role and entity and 

think about how roles and entities may 

evolve 

• Allow workstream leads the freedom to 

shape and define the scope of their 

mandates and output

Sub-Committee Workstreams:

• Tokenization Infrastructure: Set forth principles that might guide the 

use of blockchains, tokens, smart contracts, digital wallets, oracle 

networks and other innovations in a regulated investment ecosystem

• Tokenized Asset Markets: Nomenclature: Define a common taxonomy 

and set of definitions that can be agreed upon to help level-set 

discussions about elements of the new ecosystem, differentiate the 

various token types, and provide a common language for developing 

standards

• Tokenized Asset Markets: Pre-Trade, Execution & Post-Trade 

Requirements: Assess what changes might be required to existing 

practices and/or suggest new processes that might be enabled across 

the digital market lifecycle and assess how this alters, expands or 

redefines the roles of existing providers 

• Tokenized Asset Markets: Governance, Risk & Control Frameworks: 

Develop a framework on how financial system participants might 

harmonize their activities, obligations, input, and suggestions across 

both centralized and decentralized participants, existing and emerging 

utilities, and potential new entrants to maintain coordinated and effective 

communication and guide the industry to positive outcomes

• NFTs/Utility Tokens: Explore how utility tokens and NFTs that can blend 

financial, commercial, and social terms might impact investment 

portfolios, particularly the ease with which new types of assets might be 

issued and made both investible and tradable, putting forward 

suggestions on how to adapt regulations to this new type of offering 
Appendix

Footnotes for Page 3:

(1) Citigroup Predicts 80X Explosion in Tokenization, Forecasts Timeline for Mass Adoption of Digital Assets - The Daily Hodl

(2) Tokenized Gold Surpasses $1B in Market Cap as Physical Asset Nears All-Time Price High (coindesk.com)

(3) Dentons - The tokenization of real estate: An introduction to fractional real estate investment

(4) Andy Warhol Artworks to Be Offered as Tokenized Investments on Ethereum (coindesk.com)

(5) https://www.bloomberg.com/news/articles/2022-05-12/chainsmokers-to-release-nfts-that-offer-a-cut-of-musicroyalties#:~:text=Pop%20music%20duo%20the%20Chainsmokers,other%20superfans%20getting%20early%20access

(6) Diplo Joins Nas With NFT Drop on Tokenized Royalties Platform Royal (coindesk.com)

(7) Biggest Music NFTs in February: Rihanna, Snoop Dogg, Tycho, KINGSHIP – Billboard

(8) . Franklin OnChain U.S. Government Money Fund - FOBXX (franklintempleton.com)

(9) WisdomTree Announces Nine New Blockchain-Enabled Funds are Effective with the SEC :: WisdomTree, Inc. (WT)

(10)Ondo Finance Announces New Token, OMMF, Providing Tokenized Exposure to US Money Market Funds, Targeting $100 Billion Stablecoin

Market (prnewswire.com)

(11)JPMorgan Wants to Bring Trillions of Dollars of Tokenized Assets to DeFi (coindesk.com)

(12)Private-Equity Firms Push Blockchain-Based Funds Despite Crypto Collapse – WSJ

(13)State of Security Tokens 2023 - Real World Usage: Public Bonds & Institutional Adoption - Securities.io

(14)Goldman Sachs unveils digital asset platform with EIB €100m blockchain bond - Ledger Insights - blockchain for enterprise

(15)State of Security Tokens 2023 - Real World Usage: Public Bonds & Institutional Adoption - Securities.io

(16)JPMorgan Wants to Bring Trillions of Dollars of Tokenized Assets to DeFi (coindesk.com)

(17)MAS partners the industry to pilot use cases in digital assets — Marketnode — Digital Markets Infrastructure

(18)Facilitating Wholesale Digital Asset Settlement - FEDERAL RESERVE BANK of NEW YORK (newyorkfed.org)

(19)Incumbents embrace tokenization and alliances take shape | by Jonny Fry | Coinmonks | May, 2023 | Medium
Global Markets Advisory Committee

PANEL III: Tokenization of Real Assets and 

Institutional Adoption
CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company 

is strictly prohibited

July 2023

CFTC Global Markets Advisory Committee meeting

Tokenization in 

financial services
McKinsey & Company 2

Key messages for today

2

5

6 Whether or not tokenization is at an inflection point, there are a few steps companies could consider,ranging from 

simple preparednessto shaping the path for tokenization

1 Digital assets have demonstrated resilience through a period of extreme volatility, with emergence of non-crypto 

applications

Blockchain-based representation of real-world assets (i.e., tokenization) is growing as a key application of blockchain

technology across traditional and new asset classes

3 Tokenization demonstratesqualities across value chain participants inherited from three tenants of the underlying

technology: 24/7 operations, atomic settlement and programmability

4 Acombination of challenges across technology, market readiness, economics and regulation have impacted the ability 

of the industry to scale

Accelerated adoption across certain asset classes point to a potential inflection point where these challenges could

change or disappear
McKinsey & Company 3

Digital assets have demonstrated resilience through a period of 

extreme volatility

Source: Crypto Fund Research, DeFi Llama, The Block, Pitchbook, Coinbase

1.Includes centralized and decentralized trading volume

2.Based on F500 execs familiarwith cryptocurrency or blockchain – from Coinbase survey of June 2023

As of June 2023

30%+

% of FMIs with active pilots / 

investments in DigitalAssets

~95

Governments around the world who 

are actively engaging with digital 

assets

$25+ Bn

PE / VC investments in crypto and 

blockchain-related deals in 2022

(20%)

880+

DigitalAssetFunds globally

~$3 Bn

Daily volume processed by

decentralized exchanges in 2022

64%

of F500 execs indicate investing in 

blockchain is important to stay ahead 

of competition2

(20%)
Web3 Applications and use cases are built on top of 3 technology 

primitives: Blockchain, Smart Contracts & Digital Assets

Illustrative Simplified

3

2

1

Digital Assets & Tokens

Smart Contracts

Blockchain

Web3 Applications

& Use Cases

Web3 Primitives

Applications & use cases built

on top of the Web3 primitives. The 

connection of these virtual experiences 

is sometimes referred to as metaverse

Code or programs stored

on a blockchain that execute when 

conditions are met (e.g., terms between 

a buyer and a seller), governed by DAO

Assets that represent verifiable and 

ownable intangible digital items, incl. 

cryptocurrencies, NFTs, stablecoins, 

real world assets, etc.

Digitally distributed, decentralized, 

public ledger that exists

across a network and facilitates

the recording of transactions

McKinsey & Company 4

Art & 

Media DeFi Gaming Social

Source: Web3 beyond the hype, McKinsey & Company
Web 3.0 and Metaverse business models have some overlap but 

equally distinct archetypes

Web 2.0 Web 3.0

DAO

Streaming

Social networks

Sharing economy

Forums Podcasting

Blogs / Vlogs

RSS

Walled gardens

Blockchain

DApps

NFTs

DeFi

Fractionalization

Oracles

Tokenization

Metaverse

McKinsey & Company 5

Web 2.0 models

not linked to the

metaverse

Web 2.0 models 

aiming for 

metaverse-like 

models

Web 3.0 models 

in metaverse with 

“immersive 

experiences”

Web 3.0 models, 

NOT directly 

linked to 

metaverse

The metaverse 

encompasses the transition 

of human experience from 

physical to virtual, 

culminating in a network of 

virtual experiences that are 

real-time, persistent, 

interoperable,and multi-use 

case

Source: Value creation in the metaverse, McKinsey & Company
McKinsey & Company 6

Tokenization is the process of issuing a digital 

representationof a traditional asset on the blockchain

Illustrative

Overviewof the tokenization process

Asset 

sourcing

Token issuance 

and custody

Token distribution 

and trading

Asset servicing & 

1 2 3 4 data reconciliation

The asset owner or issuer 

identifies the asset that would 

benefit from tokenization

If the asset exists in the real world 

then the entity also custodies the 

asset in the real-world

The assets are immobilized and 

represented on the blockchain as 

“tokens” with functionality 

embedded in them (i.e., code) 

executing pre-determined rules

Tokens are stored by a digital 

assets custodian

Digital assets are serviced (e.g., 

regulatory reporting on asset, NAV 

calculation, tax treatments), the 

nature of may depend by asset type 

(e.g., carbon credit token servicing 

will require different auditing than 

fund tokens)

Tokens are distributed to end 

investors through traditional or 

novel channels (e.g., digital asset 

exchanges). Some tokens can be 

traded on secondary 

marketplaces for additional liquidity 

and price discovery

# DJYM 6744 BYXZ

Across assets (e.g., Bonds, MMFs, Equities, Carbon credits)

1+

Across investor types (e.g., retail, institutional, corporate)

1+ 4+ 3+

Note: Parties involve can include asset owner, issuer, traditional custody, tokenization provider, transfer agent, digital custody, broker-dealer, ATS, distributor, data provider, end investor 

Source: McKinsey research

x Number of parties potentially involved
McKinsey & Company 7

Tokenization could create unique outcomes for participants

across the financial services value chain

Revenue creation

Cost efficiencies

Not exhaustive

Asset owners Service providers Investors

Improvedcapital efficiency

Lower cost of capital and free up capital in transit

Operational cost savings

Manual and error-prone tasks in product structuring and asset servicing that can be embedded into token smart contract (and over time across a portfolio)

Enhanced compliance, auditability and transparency

Rules and credentials embedded into tokenand smart contract (e.g., investor qualification, carbon credit verification)

Cheaper and more nimble infrastructure

Open-source technology driven by the thousands of web3 developers and billions of investment dollars

Potential near 

term outcomes

Potential longer 

term outcomes

Expanding access

Access to new secondary markets & greater liquidity

Expanding access

Access to new pools of capital with lower minimum

investment required

Source: McKinsey research
McKinsey & Company 8

Challenges related to technology, economics, and regulation

have limited tokenization’s potential to scale

No licensed tokenization 

provider with integrated 

and institutional-grade 

services

Absence of at scale

token distribution

Industry

alignment

Lack of regulatory

clarity

Regulatory framework for 

tokenization has differed 

substantially by region

Incumbents have yet to 

signal the concerted will 

to build out tokenization 

capabilities or move 

markets on-chain

Limited short term 

business case

Significant upfront 

investment required to 

scale

Parallel processes 

(i.e., digital twin) 

needed in near-term

Nascent 

infrastructure

Lack of institutionalgrade web3 services 

(e.g., custody, wallets)

Low blockchain 

throughput to support 

institutional volumes

Market 

immaturity

Source: McKinsey research
Growing institutionalinterest, spurred on by a few trends, could 

indicate a possible acceleration of adoption

McKinsey & Company 9

Significant advances in cash tokenization, particularly in private, 

deposit-based bank payment networks (e.g., >$120B in tokenized 

cash in circulation)

Better short-term business case fundamentals, particularly for 

capital efficiency (i.e., faster settlement and shorter liquidity windows), 

due to a higher interest rate environment (e.g., for real-time repo 

settlement, fluid collateral management)

Emerging regulatory frameworkoutside the US, particularly in the

EU, Singapore and UK (e.g., MiCA, MAS stablecoin guidelines)

Increasing market readiness and infrastructure maturity, 

particularly in digital asset capabilities of financial services incumbents 

(e.g., large banks, asset managers, and digital asset natives)

Source: McKinsey research
McKinsey & Company 10

Whether or not tokenization is at an inflection point, there are a 

few steps companies could consider

Understand the digital asset ecosystem

and the required parties

• Partnerships:what existing 

solutions & partners could help 

accelerate your build and go to 

market

• Innovators: What are digital asset

natives doing that may be relevant

to your business

Inform standard

setting

Provide input to regulators defining

emerging standards, including:

• Governance,Risk and Control 

Frameworks: Controls 

environment and expectations to 

embedding into existing 

frameworks

• Digital asset standards: When 

to use digital native records, best 

practices for token design

• Data standards: What data is

kept on-chain vs. off-chain

Build out tech and risk 

capabilities

Learn about the technology and

associated risks, such as:

• Token design: What 

restrictions to place on the 

token, how to enforce them

• Wallet management: How to 

manage permissions across 

users

• Risk Management:How to 

manage the risk of web3 related 

assets and technologies

Form ecosystem

relationships

Re-examine underlying 

business case

Re-assess costs and benefits across

relevant use cases or asset classes:

• Macro environment: How 

higher interest rates impact the 

tokenization value prop for your 

business

• Customer demand: Which 

clients benefit from tokenization 

for specific use cases

• Investment and talent: What 

investment and talent is required 

to build the tokenization solution 

in the short and long-term

Source: McKinsey research
GFMA

Impact of DLT in Global 

Capital Markets

CFTC Global Markets AdvisoryCommittee Meeting17 July 2023
1

Copyright

© 2022 by Boston Consulting Group.All rightsreserved.

Opportunity: Tokenized securities in capital markets could deliver game 

changing efficiency and innovation

'Tokenization of securities' means...

...the digital representation of traditional financial 

instruments on a distributed ledger,reflecting an 

ownership right of the underlying asset

Note: Benefits shown are hypothetical, assuming DLT is adopted atscale in capital markets; 1. Goldman Sachs, extrapolated to global benefit case; 2. Santander InnoVentures; 3. BCG analysis (original);

4. BCG x ADDX paper; commodities and FX are out ofscope for this paper.

Fastersettlement frees trapped 

collateralforredeployment

'Golden-source' data reduces posttrade reconciliations

Tokenizationforms new liquidity 

poolsforilliquid asset classes

~$2B

Transformative efficiency & innovation

1

Est. Global back-office 

Opex saves

2

~$19T

Addressable global 

collateral in 2022

>$16T

Value of global tokenized 

illiquid assets by 2031

Smart contracts automate clearing & 

settlement

3

4

'twin' Existing

security

'Tokenized'

onto DLT

No existing

security 'Natively issued'

onto DLT

Tokenized securities

'Digital

Security tokens

'Native' 

issue

~$20B

Global clearing & 

settlement Opex saves
2

Copyright

© 2022 by Boston Consulting Group.All rightsreserved.

End game: DLT-based capital markets is emerging, but critical barriers must 

be overcome

DLT-based markets is emerging in phases1 Critical barriers to be overcome

Harmonized global legal and 

regulatory frameworks

Interoperability across DLT and nonDLT systems

Deeper liquidity across primary and 

secondary markets

Resolved technical constraints

around scale and cybersecurity

1 | Experimentation

• Limited demand for DLT securities

• Focus on primary market issuance

• Legal & regulatory ambiguity

2 | 

Commercialization

• Growing demand for DLT securities

• Growing liquidity in secondary markets

• Market-level legal& regulatory clarity

3 | Scaling

• DLT-securities demand overtakes nonDLT

• Globally harmonized legal & regulation

• Interoperability across DLT-platforms

Launched DLT-based payment 

instruments (CBDC, deposits)

Phase Characterizedby...

1. Phases will not always occur in a linear order and often occur in parallel; asset classes and transaction types (e.g., intra-day repos) are already reaching institutional scale
Copyright

© 2022 by Boston Consulting Group.All rightsreserved.

Deaveraging adoption: Varying incremental opportunity and market readiness

will drive adoption

Interplay of opportunity size and marke...t suggests illiquid assets, bonds and debt wellMarket

Structure

Market Readinessfor adoption

Maturity

of digital

Ability to 

Pilot

Regulat.

Support

Efficiencies Innovation Benefit

Equity Bond Derivative 

s

Source: Adapted from JP Morgan and BCG, "The Future of Distributed Ledger Technology in Capital Markets"; GFMA member inputs; BCG analysis

Opportunity

Readiness for adoption

Low High

3

readiness... placed for early adoption

Incremental opportunity High

Low

6

9 7

12

1 Public equities

2 Unlisted equities

Private

3 Corp. bonds

4 Sov.bonds

10 Illiquid & real

asset funds

ETFs

debt

8 MMFs

Synd.

loans 11 OTC Deriv. Liquid securities 

funds

Industry use casesfocus here

5

Securitized 

products
4

Copyright

© 2022 by Boston Consulting Group.All rightsreserved.

ImplementationModel LifecycleActivity DistributedLedgerNetwork Type

Primary Markets Private-permissioned network

Secondary Trading Public-permissioned network

Post Trade Public-permissionless network

“Books and Records” Only

DLT-based Securities

"Books and Records" use case typically 

internaland permissioned

“Books and records" use case represents 

dematerialized securities on centrallyadministered electronic databases, does not 

issue securities with use of DLT

Relevantframeworksremain 

applicableto lifecyclespecific risks 

Example: Use Of Basel MAR50 framework to 

perform CVA RWA adjustments forGroup 1A 

assets (as for or non-tokenized assets)

Private permissionednetworks

are already compliant with regulations

Public network risk considerations can be 

managed: cyberattacks, KYC/AML compliance, 

Group 2 asset exposure, market conduct, and 

settlement finality

Existing risk frameworkslargely applicable Existing risk frameworks need DLTspecific supplementation

DLT Networks:Use case considerations drive decisions around network 

type

Use case considerations Tech considerations
5

Copyright

© 2022 by Boston Consulting Group.All rightsreserved.

Impact assessment: Three dimensions assessed crossthe securities lifecycle

Source: BCG analysis

Overall DLT

Impact Medium Medium High High High

Workflow 

Efficiency Medium Low High High High

FinancialOpportunity& 

Value Creation High High High High High

IncrementalRisk 

Mitigation Low Low High Medium Medium

Dimensionsassessed

Primary 

Markets

Secondary 

Trading

Clearing& 

Settlement Custody

Asset 

Servicing
Copyright © 2022 by Boston Consulting Group.All rightsreserved.

Five critical 

takeaways

Harmonization of global regulatory and legal frameworks • Adaptations to existing legal and regulatory structures is fundamental in promoting 

transparent, disciplined, risk-focused, and effective market infrastructure.

• Different jurisdictions are facing individual and global challenges and as such, 

legislation is at different levels of maturity

• Demonstrates need for harmonized and risk-consistent policy positions across 

different jurisdictions to benefit both the market and governments& regulators

Enablement of interoperability with existing market infrastructure • Interoperability is an important enabler to network effects, providing the basis for real

-

world, diverse use cases

• Build on existing initiatives and broaden alignment ona framework of standards to guide

market-level compatibility. This entails initiatives that cover public networks with

appropriate risk mitigation, as well as private-permissioned networks.

• Key areas include technology architecture design, smart contract standards and 

governance, linkages with traditional infrastructure– alongside risk identification, 

mitigation, and management– and specific roles and responsibilities.

Development of viable Primary& Secondary Markets

• Cross-industry initiatives to focus the pooling of liquidity ina few, high potential 

asset classes (e.g., fixed income, OTC derivatives) across the security lifecycle could 

help increase the formation of viable markets for DLT-based securities.

• Market participants could focus on assets where the inefficiencies are well-

documented and the cost of conversion is less onerous

6
7

Copyright © 2022 by Boston Consulting Group.All rightsreserved.

Five critical 

takeaways

Advancement of open technical challenges posed by DLT • DLT is not yet a fully formed infrastructure solution, with demanding requirements 

around scalability, cybersecurity, and regulatory compliance.

• Industry practitioners and developer communities collaborating on research and 

development of DLT-specific solutions that address these issues.

• Cross-industry participation can maximize the strength of participating talent pools, 

distributes costs and accelerates the timeline to key outcomes

DLT-based Payment Instruments to achieve true DvP settlement

• DLT-based payments area critical enabler for the settlement of DLT-based Securities; 

integration with legacy payment tools significantly reduces the scope of benefits, 

such as programmability.

• DLT-based commercial bank deposits represent deposit account balances on a 

distributed ledger to support settlement, which can support more efficient and 

effective payment tools.
Copyright

© 2022 by Boston Consulting Group.All rightsreserved.

8

Reference Papers:

Thank You

GFMA with BCG, Clifford Chance, and Cravath, Swaine & Moore LLP report on 

the impact of distributed ledger technology (DLT) in global capital markets.

Full report, “The Impact of Distributed Ledger Technology in Global Capital Markets” 

Executive Summary

Annex I: GFMA Proposed Approach for the Classification and Understanding of Digital Assets
NONCONFIDENTIAL // EXTERNAL

Regulated Liability Network (RLN)

overview - GMAC

July 2023

1
NONCONFIDENTIAL // EXTERNAL

Disclaimer

2 2

The role of the New York Innovation Center (NYIC) in the RLN proof-of-concept (PoC) 

was limited to experimentation with simulated tokenized central bank deposits 

(referred to as a wCBDC) as a settlement asset as describedin the reports produced 

by the RLN Working Group.

The NYIC’s participation in the PoC is not intended to advance any specific policy

outcome, nor to signal that the Federal Reserve will make any imminent decisions

about the appropriatenessor design of tokenized central bank deposits or wCBDC.

The NYIC does not take a view on anything in those reports that is beyond the scope 

of its limited role, including regarding any potential regulatory or supervisory 

frameworks for the RLN FMI. The NYIC’s participation in the proof-of-concept is not 

intended to advance any specific policy outcome, nor to signal that the Federal 

Reserve will make any imminent decisions about the appropriateness or design of 

tokenized central bank deposits or wCBDC.

https://www.newyorkfed.org/aboutthefed/nyic
NONCONFIDENTIAL // EXTERNAL

Executive Summary

• On July 6, 2023, a working group of participants in the wholesale payments market published three reports conveying the findings

of an experiment to develop a proof- of-concept for a regulated liability network.

• The regulated liability network, or RLN, concept envisions a theoretical market infrastructure to exchange and settle tokenized

forms of money, such as central bank and commercial bank money.

• Such infrastructure could potentially join the benefits of emerging technologies, such as tokenization, with the safety and 

stability of existing systems.

• The experiment explored two wholesale payment use cases, domestic payments and cross-border USD payments, across three

parallel workstreams:

• BusinessApplicability

• TechnicalFeasibility

• Applicability of Legal Frameworks

• Ultimately, the experiment demonstrated potential benefits across 6 key value propositions: 1) 24/7 Availability, 2) Atomic

Settlement,3) Operational Efficiency, 4) Interoperability, 5) Resilience, and 6) ProgrammabilityofAssets
NONCONFIDENTIAL // EXTERNAL

Proof-of-Concept Overview

The RLN concept envisions a theoretical market infrastructure to efficiently and safely 

exchange and settle tokenized liabilities.

• Working group consisted of commercialbanks, payment service providers, and 

the New York Innovation Center.

• Simulated asset types were limited to tokenized commercial bank and central 

bank money.

• Two use cases examined both a domestic and cross-border payment 

transactions.

• Currency denomination was limited to USD (e.g., no foreign exchange 

component)

4

Legal:

Tech vendor:

Working Group:
NONCONFIDENTIAL // EXTERNAL

Solution Concept

The base use case was a domestic payment between two commercial banks, settled 

in central bank money.

5

PoC Scope

Fed 

RLN Ledger

Customer

Deposits

at Bank A

Customer

Deposits

at Bank B

RLN FMI

Protocol

Bank A

RLN Ledger

Customer A Wallet 

Bank A Tokenized 

Deposits

Bank B

RLN Ledger

Customer B Wallet 

Bank B Tokenized 

Deposits

Bank A FRB Wallet

Wholesale CBDC

Bank B FRB Wallet

Wholesale CBDC
NONCONFIDENTIAL // EXTERNAL

Reports Published on 7/6/23

Business Applicability Technical Legal

Report Report Report

• Includes Executive 

Summary covering all 

three reports

• Co-authored jointly by

working group 

participants

• Co-authored by working 

group with support from 

technology vendors 

(SETLand Digital 

Asset)

• Authored by legal firm 

(Sullivan & Cromwell) 

with support from 

working group 

participant legal 

delegates

https://www.newyorkfed.org/aboutthefed/nyic
NONCONFIDENTIAL // EXTERNAL

Thankyou

7
RESTRICTED 82

Que everisque iminvendis et accusdam ipsa

volesto tatemod ioribus et eum qui resti aute

volupta cum apit quatisquunt quate volorepel is 

incium assi ilibere ssitat.

Section title HSBC Orion
RESTRICTED 83

HSBC Orion – EIB ‘Mars’ Issuance

The EIB has issued the first ever GBP-denominated digital bond using blockchain on HSBC Orion

1

The European Investment Bank (EIB) appointed BNP Paribas, 

HSBC and RBC Capital Markets as joint lead managers for a 

short dated inaugural GBP digital bond issuance.

3

This is EIB’s third digital bond issuance after its inaugural 

EUR 100 million 2-year zero coupon notes executed in 2021 

and its EUR 100 million 2-year 2.507% notes executed in 

November 2022.

Size: GBP 50 million

Settlement: 02 February 2023 (T+2)

Maturity: 03 February 2025

 Two blockchain technologies (public and private)

 Plain vanilla, short-dated tenor, GBP-denominated 

 Floating rate coupons 

 Joint Lead Managers: BNP Paribas, HSBC, RBC Capital 

Markets

 The digital bond is not held in a Central Securities 

Depository, and instead recorded on a blockchain operated 

via HSBC’s Orion platform

 Secondary market supported, via OTC and agreed dealers

“ We are excited to participate in this digital bond issuance, an 

important innovation for the development of digital asset solutions. This 

is another important step on our journey to understand the transformative 

potential of distributed ledger technology and how it may support the asset 

management industry to deliver better outcomes for our clients. ” 

EIB press release dated 31 January 2023
RESTRICTED 84

HSBC Orion – Platform overview and getting involved with the EIB issuance

1. Prepare your firm for the growing 

number of digital bond issuances.

• Get involved in holding and selling 

a digital bond.

2. Review and understand the legal 

structure and term sheet supporting a 

digital bond.

3. Minimal technology and operational 

change is required to access the bond.

• A tokenised bond is similar to an 

analogue bond, but not held in a 

traditional CSD.

• The bond has an ISIN -

LU2557886475

1. Transact the bond post-issuance via 

existing OTC approaches; 

2. Work with platform custodian for the 

bond. Current platform custodians are 

HSBC, RBC and BNPP (more to be 

added soon).

3. No need to create any digital wallets, 

or use stablecoins or 

cryptocurrencies.

• Money movements for the bond 

and coupon will be in fiat sterling, 

and use a ‘settlement token’ 

approach. 

1. HSBC’s strategic platform for asset 

tokenisation.

2. A secure, private, permissioned 

blockchain acting as the legal registry, 

and a public blockchain acting as a 

memorandum of holdings.

3. Platform located in Luxembourg.

4. The European Investment Bank (EIB) 

issued its first ever GBP 50 million 

digital bond on HSBC Orion. 

https://grp.hsbc/6045MQ1fV

https://www.eib.org/en/press/all/202

3-030-eib-issues-its-first-ever-digitalbond-in-british-pounds

What is the

platform?

How can investors get 

involved?

Why should investors get 

involved?
RESTRICTED 85

HSBC Orion – Platform Architecture 

Let me know if you have any comment

Primary Issuance

HSBC’s on-chain 

payments solution

Asset Servicing

Secondary Market 

(via OTC/agreed dealers)

Public blockchain 

connectivity

External distribution 

platforms connectivity

Payment infrastructure 

connectivity

Key features

◆ Fiat cash is transferred using a settlement token 

connected to payment rails

◆ Manages issuance, coupon payment, trading and 

redemption

◆ The private blockchain is the legal register

◆ Access to the environment is controlled by HSBC

◆ Memorandum of holdings

◆ Not the legal register of holdings

◆ Anonymous

HSBC Luxembourg

Issuer Custodian/

Investor

Bond token Settlement

token

Private blockchain

DvP

Payment rails Custody platform(s)

Ethereum

Investor 1 Investor 2

1 2

Public blockchain

Memo

A secure HSBC environment . . . . . . Connected to a public blockchain
RESTRICTED 86

HSBC Orion – Account and Token Approach

4. Digital Bond Information Tokens: mirrors the ‘Digital 

Bonds’ information on the private chain onto a public 

chain. An optional information source for investors to 

see transactions in the Digital Bonds that has no legal 

status – the legal entitlement to bonds is evidenced 

on the private blockchain only.

https://etherscan.io/token/0x46a0d81204149327ae5

6bcb5887f007a41d46f2c

1. Issuance Token: indicates the primary issue details 

recorded on the securities issuance account. Created 

and held by the CAK (HSBC) only.

2. Digital Bond Tokens: the bond tokens that are issued, 

registered, held, transferred and cancelled in 

segregated securities accounts on the DLT platform. 

Each securities account on Orion are mirrored in the 

SAKs’ existing custody systems.

3. Settlement Tokens: used solely to settle cash 

transactions relating to the digital bonds on-chain. 

These Settlement Tokens are records of deposits held 

by HSBC and will be ephemeral whilst on-chain, 

existing intra-day only.

Tokens

Four token types are used to create and record the digital bonds on the Securities Issuance Account and the 

Securities Accounts.

On the Private Blockchain On the Public Blockchain

Account Structure

◆ The Orion Platform is designed and built to 

reflect the two-tier account structure under 

the Luxembourg DLT regime. 

◆ One central account keeper (the “CAK”) for 

the initial issue of the digital bonds (the 

“Securities Issuance Account”), this is HSBC

◆ Securities accounts kept by secondary 

account keepers (“SAK”) for distribution of 

the digital bonds, these are HSBC, BNP 

Paribas and RBC for the EIB issuance.
RESTRICTED 87

HSBC Orion – More Features to Come

 Connectivity: currently fund 

managers and custodians need to 

instruct one of the Direct 

Participants via SWIFT with a place 

of settlement of BBDALULX (HSBC 

CE’s BIC Code) for Direct 

Participants to enter trades onto 

the Platform; end-to-end SWIFT 

connectivity will be added in 2023

 More distributed architecture: 

increased component dispersion 

and node hosting from more SAKs

Infrastructure development 

 Collateral & Repo: collateralisation

of bonds will be possible pending 

the passing of Luxembourg law 

(Q3-4 2023); also working to 

introduce repo facilities

 Trading venue connectivity: 

trading of Digital Bonds on 

electronic platforms is being 

explored (subject to law / 

regulation)

 Token interoperability: exploring 

arrangements where a token on 

one network can have meaning on 

another 

New Features

 New custodians: bringing more 

Security Account Keepers (SAKs) 

onto the platform. SAKs can be 

existing Global Custodians or ICSDs. 

 New markets and currencies: 

further expansion across new 

currencies, geographies and other 

products

New Participants
RESTRICTED 88
Global Markets Advisory Committee

MEMBER AND SUBCOMMITTEE PRESENTATIONS 

AND DISCUSSION
Global Markets Advisory Committee

CLOSING REMARKS