CLS’s DLT payment netting service goes live with Goldman Sachs and Morgan Stanley
CLSNet brings a bilateral payment netting service to over 120 currencies, optimizing intraday liquidity, improving operational efficiency, and reducing risk
Built in conjunction with IBM, it is the first global FX market enterprise application running on blockchain in production
CLS today announces that CLSNet, a standardized, automated bilateral payment netting service for over 120 currencies operating on a distributed ledger technology (DLT) platform, is now live with Goldman Sachs and Morgan Stanley. Six additional participants from North America, Europe and Asia, including Bank of China (Hong Kong), have committed to joining the service, with a steady onboarding of several other market participants planned in the next few months.
The service has been developed for, and in collaboration with, buy-side and sell-side institutions. CLSNet has been designed to standardize and increase the levels of payment netting in the FX market for trades not settling in CLSSettlement. By standardizing and automating the calculation of payment netting, CLSNet can reduce costs for market participants and increase liquidity in FX markets. The service also supports compliance with certain principles of the FX Global Code of Conduct.
Commenting on the launch, Alan Marquard, Chief Strategy and Development Officer, CLS, said, “We are excited to be launching CLSNet, the first service of its kind to be operated on a DLT platform. Further, this offering demonstrates how we are using our unique, trusted position at the center of the FX market to solve industry challenges.
“A standardized and automated payment netting process will lead to improved intraday liquidity, reduced cost, improved operational efficiencies and ultimately support business growth.”
Currently, a lack of standardization and automation introduces risk and operational inefficiencies for market participants. While a large number of participants currently net with each other on a regular basis, these processes often have manual intervention and are not fully standardized or scalable. The impact of limited payment netting is exacerbated by the high settlement costs associated with emerging market currencies, despite their increased relevance for FX market participants.
Further, there are many FX market participants that do not net the payments in respect of FX trades, instead choosing to settle on a gross basis. These gross payments have full exposure to settlement risk, resulting in higher intraday liquidity demands and causing institutions to hold more capital.
CLSNet was built in conjunction with IBM and runs on the Linux Foundation’s Hyperledger Fabric blockchain framework. CLS’s collaboration with IBM has produced valuable insights into the benefits that DLT can bring to post-trade processes. CLS will use the knowledge and experience gained from building this service on DLT architecture as it looks to create greater efficiencies and reduce costs for clients.
Adam Josephart, Managing Director, Fixed Income Division, 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.”
“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,” said Marie Wieck, General Manager, IBM Blockchain. “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.”