It has been almost two years since IBM and CLS embarked on an initiative to exploit blockchain technology. However, in August, the initiative went into production. A recent news release indicates that the DLT payment netting service is now available for clients to utilize.
CLS bank is a major player in the global foreign exchange market. It mainly acts as the clearing bank for foreign exchange for banks and other major players. Particularly, the bank handles approximately $5 trillion a day in 18 currencies.
LedgerConnect
The DLT payment netting service utilizes blockchain for its operations. Basically, IBM entered an agreement with CLS bank to integrate distributed ledger technology (DLT) in the netting service.
In late July, the two companies launched the proof-of-concept (PoC) for LedgerConnect. Essentially, this is a DLT platform for the financial services industry designed to enable banks, buy and sell side firms, FinTechs and software vendors to deploy, share and consume services hosted on a shared distributed ledger network, according to a press statement.
Already, the solution, dubbed CLSNet, is live with Goldman Sachs and Morgan Stanley. According to the news release, six additional participants will join the service at a later date. The six come from North America, Europe and Asia.
DLT payment netting service to cut costs for participants
The solution standardizes and increases the levels of payment netting in the foreign exchange market. In particular, the solution will be available for trades not settling in CLS Settlement.
At the heart of the solution is the desire to reduce settlement costs for market participants. Basically, the solution achieves this by automating the calculation of payment netting.
Interestingly, the news release asserts that the service 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,” commented Alan Marquard, Chief Strategy and Development Officer, CLS.
Adam Josephart, Managing Director, Fixed Income Division at Morgan Stanley agrees with the assessment. He says, “CLSNet will deliver the standardization and automation needed for non-CLS settled transactions.”
