Goldman Sachs and Morgan Stanley go live on DLT platform for FX

CLS announced that CLSNet, a standardized, automated bilateral payment netting service for over 120 currencies operating on a distributed ledger technology (DLT) platform, is now live with Goldman Sachs and Morgan Stanley. Six additional participants from North America, Europe and Asia, including Bank of China (Hong Kong), have committed to joining the service, with a steady onboarding of several other market participants planned in the next few months.

The service has been developed for, and in collaboration with, buy-side and sell-side institutions. CLSNet has been designed to standardize and increase the levels of payment netting in the FX market for trades not settling in CLSSettlement. By standardizing and automating the calculation of payment netting, CLSNet can reduce costs for market participants and increase liquidity in FX markets. The service also supports compliance with certain principles of the FX Global Code of Conduct.

“A standardized and automated payment netting process will lead to improved intraday liquidity, reduced cost, improved operational efficiencies and ultimately support business growth,” said Alan Marquard, chief strategy and development officer at CLS, in a statement.

Currently, a lack of standardization and automation introduces risk and operational inefficiencies for market participants. While a large number of participants currently net with each other on a regular basis, these processes often have manual intervention and are not fully standardized or scalable. 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, Bank-wide Operation Department of Bank of China (Hong Kong), said in a statement, “We take great pleasure in participating in CLSNet, which 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.”

There are many FX market participants that do not net the payments in respect of FX trades, instead choosing to settle on a gross basis. These gross payments have full exposure to settlement risk, resulting in higher intraday liquidity demands and causing institutions to hold more capital.

CLSNet was built in conjunction with IBM and runs on the Linux Foundation’s Hyperledger Fabric blockchain framework. CLS’s collaboration with IBM has produced valuable insights into the benefits that DLT can bring to post-trade processes. CLS will use the knowledge and experience gained from building this service on DLT architecture as it looks to create greater efficiencies and reduce costs for clients.

Marie Wieck, general manager, IBM Blockchain, said in a statement “With CLSNet now in production with two of the world’s largest banks, for a major market function, it is a testament to the ongoing maturity of blockchain technology and the value that it can deliver in practice.”

Read the full release

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