CLS, the bank-owned currency trading utility, and IBM have gone live with their blockchain-based payment.
Investment banking giants Goldman Sachs and Morgan Stanley, with six more participants from North America, Europe and Asia, including Bank of China (Hong Kong), committed to joining in the next few months, according to CLS and IBM.
Ram Komarraju, managing director for technology at CLS, told CoinDesk the system is up and running, saying:
"We have matched and confirmed the first transactions and successfully issued a report to the counterparties."
Along with the food-tracking blockchain IBM Food Trust launched in October, and the finance trade platform we.trade, which went live in late June, CLSNet is the third blockchain consortium powered by IBM tech to go into production this year.
As such, it's one of the few major companies distributed ledger technology (DLT).
"We are a testament to the ongoing maturity of blockchain technology and the value that can deliver in practice," said Marie Wieck, general manager at IBM Blockchain, in a press release.
The launch of CLSNet, she said, represents "the first post-trade production deployment of blockchain technology in a global market utility."
Filling in gaps
Though not a household name, CLS provides critical plumbing to the foreign exchange, or forex, markets. Founded in 2002, mitigates settlement risk for participating banks with "payment versus payment" service, in which both sides are completed at the same time.
But the new platform aims to solve current issues in the forex market, as a lack of standardization and automation.
For example, a limited number of participants are currently available on a regular basis, according to IBM and CLS. In addition, many investors do not net the payment for forex trades, instead of settling on a gross basis, which
"CLSNet will deliver the standardization and automation needed for non-CLS settled transactions," said Adam Josephart, managing director of the fixed-income division at Morgan Stanley.
Barry Lo, general manager of the Bank of China (Hong Kong), added that CLSNet in particular "will enhance operational efficiency in trade matching and payment netting for non-CLS settled currencies such as CNH [the offshore version of China’s renminbi], and strengthen our risk management. "
The now-live CLSNet works for over 120 fiat currencies and is designed to standardize and increase the level of payment in the foreign exchange market. It was developed into buy-side and sell-side institutions. CLS helped to develop, the company stated.
"A standardized and automated payment process," said Alan Marquard, chief strategy and development officer at CLS.
CLS and IBM developed CLSNet on the Hyperledger Fabric blockchain. But CLS has been experimenting with blockchain technology since early 2015, before the Hyperledger consortium started.
CLSNet, with Bank of America, Bank of China, Bank of Tokyo-Mitsubishi UFJ, Citibank, Goldman Sachs, JPMorgan Chase and Morgan Stanley on board when the project was unveiled in September 2017.
From the beginning, CLS worked with IBM on blockchain solutions. However, in May of this year, the forex trading utility announced a $ 5 million investment in another major enterprise DLT vendor, R3.
CLS is working on, Komarraju told CoinDesk.
"Our investment in R3 has no impact on the future development of our products using Hyperledger Fabric, as we do not believe that DLT should be a 'one-network universe,'" he said, adding:
"We believe that the industry will benefit from a choice of providers, which is why we have been chosen to align with two key providers, R3 and IBM, in the DLT space."
Meanwhile, CLS and IBM have expanded their collaboration. For a separate project named LedgerConnect, a financial blockchain "app store" offering DLT-based services for know-your-customer processes, screening sanctions, collateral management, derivatives post-trade processing and reconciliation and market data.
Currency trading image via Shutterstock.