Wells Fargo and HSBC announced an agreement to use a blockchain-based solution for the netting and settlement of matched foreign exchange (FX) transactions. Through this agreement, Wells Fargo and HSBC will jointly use a shared settlement ledger to process US dollar, Canadian dollar, British pound sterling and Euro transactions with plans to extend the platform to settle additional currencies in the near future.
Using blockchain technology, this solution provides each bank with ongoing real-time transparency of settlement status for matched FX transactions in the applicable currencies. It will enable both parties to use Payment-vs-Payment (PvP) settlement netting in an efficient manner, which will reduce settlement risks and associated costs of processing FX transactions.
Mark Jones, co-head of Macro, Wells Fargo Corporate & Investment Bank, said in a statement:. “We believe this will be the first step of many utilizing transformative technology across our industry in the years ahead.”
The shared, private ledger enhances settlement speed and efficiency by using blockchain technology, applied under the framework of an agreed framework designed to provide legal certainty around settlement finality, or rulebook. The banks will be able to net bilateral payment obligations and settle on a pre-agreed cadence multiple times per day within the flexibility of the settlement windows enabled by this technology.
The offering builds on HSBC’s FX Everywhere platform which has settled over three million intrabank trades worth over $2.5 trillion since going live in 2018. Based on the results of this arrangement, the parties hope to expand the system to add more participants and to introduce a central Financial Market Infrastructure (FMI) provider to administer the platform rulebook.
Mark Williamson, global head of FX Partnerships & Propositions at HSBC, said in a statement: “As financial services continue to digitize the store of payment and value on blockchain, we are delighted to work with Wells Fargo in the adoption of this important cross-border digital backbone for the confirmation and settlement of Foreign Exchange trades. We are excited to continue to grow the FX Everywhere network whilst ensuring that we are well placed to transact in new forms of regulated digital currencies such as Central Bank Digital Currencies.”
The platform runs on Baton Systems’ blockchain inspired proprietary CORE distributed ledger technology and is governed by the Baton rulebook. In a separate statement, Baton Systems announced that all currencies, including emerging market currencies, which are ineligible for PvP settlement in CLS, can now be securely settled using distributed ledger technology that provides extensive flexibility and complete transparency.
Arjun Jayaram, CEO and Founder of Baton Systems, said in a statement: “This development is hugely significant for the entire FX market, as it offers firms the opportunity to really address settlement risk – arguably the most critical control issue impacting post-trade today.”
Baton is engaging with other FX trading businesses, as well as regulators globally, to expand market access to fast and riskless PvP settlement protection to a wider universe of participants.