FMI stands for "Financial Market Infrastructure." It refers to the systems and institutions that facilitate the smooth functioning of financial markets. FMI plays a vital role in providing the infrastructure necessary for the execution, clearing, settlement, and recording of financial transactions.
Financial Market Infrastructure includes various entities such as payment systems, central securities depositories, central counterparties, and trade repositories. These institutions enable the transfer and safekeeping of financial instruments, as well as the processing and reconciliation of payments. FMIs function as intermediaries, ensuring that transactions are executed efficiently, securely, and with minimal risk.
One essential characteristic of FMIs is their ability to provide finality and irrevocability to financial transactions. This means that once a transaction is settled or cleared through an FMI, it cannot be reversed or changed, offering certainty and integrity to the financial system.
The regulation and oversight of FMIs are of utmost importance, as they directly impact the stability and integrity of financial markets. Authorities, such as central banks and regulatory bodies, establish rules and standards that FMIs must follow, ensuring their transparency, resilience, and risk management practices.
Overall, FMI plays a crucial role in supporting the functioning of financial markets by providing the necessary infrastructure and rules for the efficient and secure execution of financial transactions.
