U.K.-based CLS Group – a provider of Forex settlement and risk mitigation services – has announced the launch of a net blockchain-based payment netting service called CLSNet. The new service is launched in collaboration with tech giant IBM. Moreover, this service is powered by the Hyperledger Fabric blockchain framework by the Linux Foundation.
The job of CLSNet service is basically to help emerging markets to reduce the risks with post-trade settlement in foreign currency. The CLSNet app is the ”first global FX market enterprise application” powered by the revolutionary blockchain technology. CoinDesk reports that big giants like Goldman Sachs and Morgan Stanley are the first users of CLSNet.
Moreover, CLS says that there are six more members from Europe, Asia, and North America willing to join this service in the next six months. One of them is the Bank of China (Hong Kong) who has already pledged its support.
Alan Marquard, CLS’ head of Strategy and Development, expressed excitement on the launch of CLSNet service on the DLT platform. He also said that the new service will help CLS to further strengthen its position in solving the challenges of the FX market.
“A standardized and automated payment netting process will lead to improved intraday liquidity, reduced cost, improved operational efficiencies and ultimately support business growth.”
Marie Wieck, general manager at IBM Blockchain, also shared his view on the growing maturity of blockchain technology in the FinTech space.
“Since we first pioneered the use of blockchain in the FX market nearly three years ago, IBM has been working hard with CLS on the development and deployment of CLSNet as the first post-trade production deployment of blockchain technology in a global market utility. 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.”
This is probably the third blockchain platform by IBM in 2018. Earlier in July 2018, IBM launched a Financial Blockchain App Store in collaboration with CLS and Barclays. Last month in October, IBM announced the launch of its Food Trust Blockchain project in collaboration with European Supermarket giant Carrefour.
Addressing Existing Issues in the Global FX Market
Issues like operational inefficiency, lack of automation and global standards are currently affecting the global FX market. Moreover, because of high-settlement costs, limited payment netting service has poor output, especially with emerging market currencies. It is because most of the netting process for limited participants happens manually with the lack of full scalability.
There are cases where participants of the FX market opt for gross payment settlements instead of netting the payments. In such a case, the gross settlement becomes more susceptible to settlement risks. Furthermore, it increases the liquidity demands requiring institutions to hold a higher amount of capital.
The DLT-based CLSNet will likely overcome all these issues. It will optimize intraday liquidity, enhance operational efficiency, and further lower down risks. The CLS bilateral payment service will be available across 120 countries of the globe.
If you want to know more about the functioning of CLSNet, please download the official report from the CLS website.
Expert Views on the Launch of CLSNet
The CLS Group has received a lot of appreciation from the Forex industry participants for the launch of its DLT-based service. Adam Josephart, the managing director of the Fixed Income Division at Morgan Stanley said:
”CLSNet will deliver the standardization and automation needed for non-CLS settled transactions. We are delighted that Morgan Stanley is one of the early adopters of the service”.
Barry Lo, General Manager, Bank-wide Operation Department of Bank of China (Hong Kong), said:
“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.”