Multi-bank foreign exchange counterparty CLS is to build a payments netting service for trades settled outside the core membership using distributed ledger technology based on Hyperledger Fabric.
CLS says it wants to use its position to standardise and expand bilateral payment netting capabilities for the entire FX market, eliminating intra-day liquidity demands caused by inefficient bespoke approaches to netting throughout the market.
The company has signed up 14 banks as early adopters of the proposed service, which will accept FX instructions for six products, including non-deliverable forwards (NDFs), and 24 currencies over existing Swift-based channels.
Participants will also have the option of connecting directly to the platform via a permissioned distributed ledger, administered by CLS using Hyperledger Fabric. As a founder member of the Linux Foundation’s Hyperledger Project, CLS will be working with IBM to build new infrastructure.
Martin Jetter, SVP IBM Global Technology Services, says: “This is an example of the type of transformational change that distributed ledgers and permissioned blockchain networks are bringing to the financial markets and other industries.”
David Puth, CLS chief executive says the new service will be delivered in a phased approach – subject to regulatory approval – beginning with 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.
Tom Zschach, chief information officer at CLS, adds: “Working with IBM to deliver CLS Netting using an open-source DLT solution will ensure the appropriate levels of confidentiality, security, standardisation, scalability and flexibility required to create a meaningful network effect across the financial industry.”