Financial Market Infrastructure

Financial market infrastructure, often called FMI, is the plumbing of the financial system. Although largely invisible to the public, it handles enormous volumes of transactions every day.

Main types include payment systems, which transfer money between banks; central securities depositories, which hold securities and record ownership; securities settlement systems, which transfer securities against payment; central counterparties, which clear trades and manage default risk; and trade repositories, which collect data on derivatives trades for regulators.

For example, when an investor buys government bonds, a central counterparty may clear the trade, a settlement system transfers the bonds and the payment, and a central securities depository records the new owner.

Because these systems are so critical, their failure could disrupt the entire financial system. International standards, the Principles for Financial Market Infrastructures, set by central banks and securities regulators, require them to manage risks, maintain strong governance and have robust business continuity plans.