CLS Developing Blockchain-Based Payment Netting for FX Market

CLS Group (CLS) has just announced its intent to release a payment netting service for buy-side and sell-side institutions’ FX trades that are settled outside the CLS settlement service. Participants will be able to submit FX instructions for six products, including non-deliverable forwards (NDFs), and 24 currencies over existing SWIFT-based channels. They will also have the option of connecting directly to the platform via a highly secure, permissioned distributed ledger, administered by CLS.

David Puth, CEO of CLS, commented: “Working with our settlement members and the buy-side, we have developed CLS Netting to address these challenges. The service will leverage our unique infrastructure, expertise and position as a trusted post-trade partner. It is a significant step forward in reducing risk and providing further efficiencies and resilience across the global FX market. CLS Netting is a critical component of our strategy to deliver a comprehensive suite of post-trade and risk mitigation services for the entire FX market.”

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CLS says it will build the DLT platform for CLS Netting using Hyperledger Fabric, an industry-accepted, open-source solution, and is collaborating with IBM to help ensure that the platform meets the requirements necessary for delivering a resilient, secure, and scalable service.

“This is an example of the type of transformational change that distributed ledgers and permissioned Blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Read this Term networks are bringing to the financial markets and other industries,” said Martin Jetter, Senior Vice President IBM Global Technology Services. “CLS and IBM have worked together for many years to continuously innovate, bringing security-rich technologies that can speed transactions and help reduce risk for the world’s global markets. This is another important technological advancement and an important next step in our partnership.”

The first phase will deliver a payment netting service for FX spot, forwards, NDFs, swaps, tomorrow/next day and same-day trades across the 18 currencies CLS currently settles, as well as the Chinese renminbi (offshore), Russian ruble, Polish zloty, Turkish lira, Thai baht and Czech koruna. Following the delivery of phase one, CLS will expand the service to include more currencies and attributes.

Participating Institutions

Tom Zschach, Chief Information Officer at CLS, added: “By bringing our expertise and connectivity across post-trade FX, our never-ending focus to improve security and resilience and the innovation of DLT together, CLS Netting will offer a solution that can be used by the broadest range of FX market participants in a safe and efficient manner.

Working with IBM to deliver CLS Netting using an open-source DLT solution will ensure the appropriate levels of confidentiality, security, standardization, scalability and flexibility required to create a meaningful network effect across the financial industry.”

John Blythe, Global Head of Currency Operations at Goldman Sachs, commented: “This is an important development for the post-trade landscape. CLS Netting will not only reduce risk in the FX market, but also optimize Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term and operational practices which are fundamental to success in the current FX market.”

These institutions have already committed to support the release of CLS Netting: Banco Actinver, Bank of America, Bank of China - Hong Kong, Bank of Tokyo-Mitsubishi UFJ, Citibank, FirstRand, Goldman Sachs, Goldman Sachs Asset Management, HSBC, Intesa Sanpaolo, JPMorgan Chase, Morgan Stanley, Neuberger Berman and Northern Trust.