Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
Speaker: Thanks for listening.
Speaker: And now onto today's show.
Speaker: Welcome to the Emerging Market Spotlight, a podcast series from HSBC.
Speaker: The emerging markets landscape is more complex than ever at a time of divergent monetary policy, high commodity prices, supply chain disruptions, and geopolitical tensions.
Speaker: Join us as we speak with world's leading institutional investors, experts, policymakers and thought leaders to explore the challenges and opportunities.
Speaker: Make sure you subscribe to HSBC Global Viewpoint and stay up to date with new episodes.
Speaker: Thanks for listening.
Speaker: And now on to today's show.
Speaker: Hello, and thank you for joining.
Speaker: I have the pleasure of starting off the conversation, which is going to be focused on digital innovation in markets, Web3, NLP, which is natural language processing, AI, artificial intelligence, blockchain, and more.
Speaker: With that, my name is Jeff Wertheimer.
Speaker: I'm responsible for HSBC's e-sales efforts across markets.
Speaker: And I have the pleasure of being joined by some of the bank's senior most
Speaker: leaders that are driving innovation in markets for HFPC.
Speaker: Just quick introductions.
Speaker: We have Mark Williams.
Speaker: Mark is a managing director, part of the GFX e-risk team, also the global head of FX partnerships and propositions.
Speaker: I think interestingly for this conversation, he has experience trading operations technology, been a COO, a good person to help us figure out how to get into the next generation of markets.
Speaker: Also has a lot of experience with transformation programs.
Speaker: And I have to highlight it, Mark, because I saw it.
Speaker: His job is to assess the use of ABCDE, which is AI blockchain cloud data and ecosystem.
Speaker: So very cool, Mark.
Speaker: And thanks for joining us.
Speaker: Next, we have Dr. Ash Booth.
Speaker: He's the head of artificial intelligence for markets and security services.
Speaker: He has a data science background, also an entrepreneurial background, and has good experience working at
Speaker: hedge funds as well.
Speaker: Perhaps most importantly, he has a PhD in the application of machine learning to algorithmic trade execution.
Speaker: And last, but certainly not least, is Asif Sharani.
Speaker: So Asif runs the EMEA syndicate desk in London, and also the DCM business for the public sector globally.
Speaker: So Asif, I think you're probably quite busy.
Speaker: You've been with HSBC for a while.
Speaker: And I think for this conversation, the most
Speaker: notable pieces where you were part of the IBOARD transition was obviously a major undertaking at a large bank, um, in, in EMEA, DCM.
Speaker: Um, and also you're now spearheading the digital transition for capital markets, which again, I think is a big part of what we're talking about today.
Speaker: Uh, but Mark kicking off, um, with a pretty broad topic and our first couple of buzzwords of the day, digital currencies and assets.
Speaker: It's a, it's a broad topic.
Speaker: It's a hot topic.
Speaker: Um,
Speaker: you can't really escape without seeing it on a reasonably daily basis.
Speaker: When we think about the whole landscape, just in your view, how should our audience and our clients be thinking about the landscape?
Speaker: Well, thanks very much, Jeff.
Speaker: And hello, everyone.
Speaker: I think...
Speaker: There's a few things with how we look at digital currencies and assets.
Speaker: And first and foremost, financial services is going through its blockbuster to Netflix moment.
Speaker: So the way that we look at digital currencies and assets at HSBC is we look at it as a three plus one, but we look at central bank digital currencies.
Speaker: And we've been providing research papers and a number of different experiments with CBDC since 2017.
Speaker: So it's not a new topic for us.
Speaker: Secondly, we look at stablecoins.
Speaker: At the moment, we're keeping a watching brief on that.
Speaker: We're looking forward to seeing some robust regulation come in place before stablecoins can be used more broadly throughout the digital assets and currency space.
Speaker: And thirdly, we look at cryptocurrencies.
Speaker: As a bank, and this is true for all our peers across the street, we do not touch the cash side or the underlying, but we do look at the derivative side of things.
Speaker: So, that's where we look at exchange-traded products that are traded on regulated exchanges, for example, futures on CME, and it's traded in fiat currencies.
Speaker: And the fourth one or the plus one is probably one of the more important ones today.
Speaker: And Asif will chime in on later on is looking at tokenization.
Speaker: So we're looking at how do we tokenize bonds?
Speaker: How do we tokenize gold?
Speaker: And how do we put these new stores of value and payments onto distributed ledger technology or blockchain?
Speaker: I think everybody, including me, knows what crypto is.
Speaker: CBD, if you've just covered, right, but maybe worth a second to explain them.
Speaker: And also, you've used the term tokenization.
Speaker: But if we could just give a little bit of a definition for what they are, I think might help us understand how it all hangs together.
Speaker: So on tokenization, that's where we look to do a or tokenize a gold bar, for example, and we'll have a digital representation of that gold bar on distributed ledger technology or blockchain.
Speaker: Or in Asif's case, that's where we're looking to tokenize a bond and put that onto
Speaker: onto blockchain technology.
Speaker: And we're using blockchain or distributed ledger technology as a safe, immutable transport layer for streaming, going back to our Blockbuster to Netflix moment, for streaming financial services and products to our clients in a safe, immutable way.
Speaker: And when we do that, that helps us on a number of different levels.
Speaker: Firstly, removing a lot of operational friction, improving transparency,
Speaker: workflow of those financial services as they move along the distributed ledger technology and also audit trail.
Speaker: So, we know precisely where the bond is and the cash that's associated to the bond or within foreign exchange when we're looking at FX settlements, knowing precisely where that foreign exchange deal is from time of deal capture through to settlement.
Speaker: Another good example with that is central bank digital currencies, looking at an experiment that we did last year with Banque de France, where we issued, or Banque de France issued a CBDC euro bond in the primary market.
Speaker: We then stored that in our digital vault, and we sold that to one of our clients in the secondary market.
Speaker: And then the following day, we rolled the experiment forward,
Speaker: And we received coupon payment from Banque de France and per our client's standard settlement instructions,
Speaker: we did a foreign exchange conversion to another synthetic CBDC and then sent that into their bank account.
Speaker: So when we're looking at CBDCs and what we're trying to solve for there, that's looking at how do we solve the Rubik's Cube of CBDCs and that is wholesale, retail, token-based, account-based, domestic and cross-border.
Speaker: So that was a really good way of experimenting.
Speaker: And then for the markets folks, what was
Speaker: Really interesting and cool with that experiment was that was across primary markets, secondary markets, and also FX.
Speaker: So it looked at the full lifecycle of that particular digital instrument as it flowed through that lifecycle.
Speaker: the advantages of blockchain.
Speaker: Clearly, there's a lot of advantages that Mark mentioned very briefly, but to add to the increased transparency and efficiency that we've seen for DOT and blockchain, there's also many other things that you could add to it.
Speaker: One from a financial market perspective is clearly
Speaker: improved capital optimization, reduced counterparty risk.
Speaker: And all this predominantly comes from the technology that exists on DLT and the fact that we can have instant settlement.
Speaker: So shorter settlement cycles, this comes in bonds or trading any assets really, and bonds is my specialty.
Speaker: So I'll use that as an example here.
Speaker: But when you have shorter settlement cycles, you have reduced counterparty risk.
Speaker: That's fairly obvious.
Speaker: But you also have increased capital efficiency, in particular for banks.
Speaker: And
Speaker: I like always giving the example of primary markets, which again is what I do on a daily basis.
Speaker: You normally have a primary bond transaction settled T plus five in terms of settlement cycle from the trade date five business days after that bond is created and actually is in the settlement systems.
Speaker: We could achieve with DLT and using blockchain atomic settlement that would allow us
Speaker: to settle instantaneously.
Speaker: So T plus zero settlement cycles could come the norm as long as the rest of the ecosystem moves to a more efficient technology, which again, blockchain would provide.
Speaker: So that means as a bank, normally we would have to set aside capital for five days.
Speaker: In that example here, we don't have to set any capital aside.
Speaker: there is no risk of us from a counterparty perspective.
Speaker: We have more capital to play with that we could put into more efficient use.
Speaker: So you have a huge amount of not only financial benefits, but also efficiency gains that Mark described.
Speaker: And just whilst we're speaking about tokenization as well,
Speaker: It's a hugely interesting field and Mark's work and the team's work on the gold tokenization or our work on a bond tokenization platform.
Speaker: I think this is really game changing and we're seeing a lot more from the investor community, a lot more asset managers looking at how to tokenize various different assets.
Speaker: And one of the benefits is that you can scale your operations, but you can also fractionalize assets and that allows for a better distribution.
Speaker: After this year's crypto crash, which is something probably everyone in the investor space is aware of,
Speaker: Is there still appetite in the market for growth in this sector?
Speaker: I think it depends.
Speaker: It depends what you're defining as a sector.
Speaker: The way we look at the technology is that it's something that compares to the legacy systems.
Speaker: And this is legacy systems not only at banks, but financial institutions across the globe.
Speaker: Blockchain has many advantages when it comes to comparing to the legacy systems.
Speaker: And again, we'll touch upon those in more detail.
Speaker: So we're talking
