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Today CLS, the forex market infrastructure, announced an agreement with Finastra to allow Finastra clients to use CLSNet, the blockchain settlement system for secondary currencies. The system is already used by Goldman Sachs, Morgan Stanely, Bank of America, BNP Paribas, Citibank, Deutsche Bank, Morgan Stanley and others.
CLSSettlement provides its forex settlement services for the world’s top 18 currencies and settles approximately $ 5.5 trillion in payments per day. It introduced CLSNet to enable a clearing service for around 120 other currencies.
Rather than having to settle every transaction, creating an automated clearing structure reduces risk. It means less liquidity is required in emerging currencies and also reduces the inefficiencies and potential errors resulting from the manual calculation of net positions. As emerging market currencies generally cost more to settle, significant savings can be made through clearing.
Today’s news indicates that CLSNet is integrated with Finastra’s Fusion Confirmation Matching Service. Finsastra has 800 companies and purchasing institutes using the service that will not need to do any integration because Finastra has actually done so.
Keith Tippell, CLS Global Head of Product, said the partnership with Finastra is “a good example of two major service providers in the FX ecosystem working together for the benefit of their clients and the FX market as a whole.” As with any payment-related system, the key to CLSNet is achieving network effects.
The solution was originally developed with IBM using Hyperledger Fabric.
The devil is in the details
In terms of how netting works, one of the benefits of CLS is standardization. If you have two counterparts in different time zones, their daily cutoff times for settlement are unlikely to match. As an example of how CLS would help with standard processes, is that all trades will be cleared before the previous cut-off time. Exchanges after that period will not be compensated.
