With the hype of blockchain, the first global Forex market (FX) enterprise based on blockchain went live today. CLS Group or Continuous Linked Settlement is US financial enterprise that offers settlement services across FX market participants. In July, CLS tied up with IBM for Proof of Concept via CLT platform to precede service on a shared network.
FX Market To Improve Efficiency With CLSNet
The announcement revealed that Goldman Sachs and Morgan Stanley with six other banks from North America, Europe, Asia and Bank of China (Hong Kong) have joined the live system of CLSNet, initiated by IBM and CLS. Additionally, the other market participants will soon join the board, CLS said.
Reports also disclosed its key aim behind launching CLSNet is to offer better bilateral netting service for FX market participants. This is to reduce settlement risk as well as to improve operational efficiency. With the launch, the firm agreed to work under regulatory stance by complying with FX Global Code of Conduct.
Alan Marquard, chief strategy and development officer at CLS said:
“A standardized and automated payment netting process will lead to improved intraday liquidity, reduced cost, improved operational efficiencies and ultimately support business growth.”
Also IBM Blockchain’s general manager, Marie Wieck described the initiative as
It is a testament to the ongoing maturity of blockchain technology and the value that it can deliver in practice,”
IMB Blockchain Emerged
Notably, CLSNet counts as the third blockchain system powered by IBM within 2018 – following IBM’s food tracking platform (IBM Food Trust) and trade finance software (We.trade). In specific, the new FX netting system will be based on IBM’s Hyperledger Fabric distributed ledger technology (DLT). Consequently, It has been revealed that the CLSNet will
“runs on the Linux Foundation’s Hyperledger Fabric blockchain framework”,
Viewing the current system running on FX market, CLS said that the manual processes are not completely standardized or scalable and will likely to have an intervention. Market participants by opting gross payment settlement instead of net payment are apt to encounter settlement risk which eventually leads to intraday liquidity demands. Hence the CLSNet is launched to mitigate these risks.
“The impact of limited payment netting is exacerbated by the high settlement costs associated with emerging market currencies, despite their increased relevance for FX market participants”,
Barry Lo, General Manager of Bank of China (Hong Kong) is confident of CLSNet service. He said;
“CLSNet [will]… enhance operational efficiency in trade matching and payment netting for non-CLS settled currencies such as CNH, and strengthen our risk management. This underscores our strong commitment to driving Fintech innovation and represents a major step forward in the application of new technology in our businesses.”