Paolo Angelini: Digital finance and markets infrastructures

Speech by Mr Paolo Angelini, Deputy Governor of the Bank of Italy, at the conference "The New Frontiers of Digital Finance", organised by Commissione Nazionale per le Societa e la Borsa (Consob), Rome, 10 March 2023. 

Central bank speech  | 
14 March 2023

Let me thank President Savona and Consob for inviting me today to talk about technological innovation in payments, securities clearing and settlement systems, i.e. the market infrastructure that is the backbone of our financial system.

1 "Traditional" digital innovation has been doing a lot for financial markets infrastructure

I would argue that this is probably the sector least affected, thus far, by the latest technological developments that inspire today's seminar. The adoption of digital technologies for financial market infrastructures started with the dematerialization of securities in the sixties. Trading on digital platforms began to replace trading floors (the "pits") in the eighties. In the nineties, real time gross settlement systems (RTGS) led to a revolution in wholesale payments worldwide, bringing added security to market transactions at affordable costs, thanks to their ability to effect a huge increase in efficiency (a rise in the velocity of circulation of central bank money). The next step was to eliminate counterparty risk in securities transactions via the adoption of delivery versus payment (DVP). The emergence of fast electronic communication networks allowed investors to use real-time data for algorithmic and high-frequency trading, which in Europe now account for about 70 per cent of all equity trades. Nowadays, reflecting a widespread dematerialization process, almost all financial assets are in digital form and traded through electronic platforms; all wholesale payments are initiated and settled online. For example, the European large value payment system, TARGET2, settles average daily transactions worth about 2.5 trillion euro, one sixth of the euro area's annual nominal GDP it can work jointly with TARGET2-Securities (T2S), allowing DVP of the cash and security legs of transactions.