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Today Wells Fargo and HSBC announced they’ve agreed to settle foreign exchange (FX) transactions in several major currencies using a blockchain platform. The banks will settle bilateral transactions starting with USD, CAD, EUR and GBP with plans to extend the solution to other currencies. The platform will process around a hundred transactions a week in the early stages and gradually ramp up.
In 2018, HSBC launched its FX Everywhere platform, which it initially used between banks within the HSBC group but it’s now extending with this partnership. To date, the solution has processed three million intrabank trades amounting to $2.5 trillion.
The offering enables real-time transparency and payment versus payment (PvP) net settlement to cut costs while limiting settlement risks. The banks can choose how many times a day to make net settlements between them.
Now that the platform is being used beyond HSBC, the two banks are looking to add others and hence are considering creating an industry owned central Financial Market Infrastructure (FMI) provider to administer the platform rulebook.
“The platform enables participants to efficiently settle bilateral cross border obligations across multiple onshore and offshore currencies, coupled with the added flexibility of extended settlement windows to optimize PvP risk reduction opportunities,” said Mark Williamson, global head of FX Partnerships & Propositions at HSBC.
CLS, the organization created to reduce settlement risk in the foreign exchange market, also has a blockchain solution, but for the lesser used currencies outside the top 18 that are on CLSSettlement.
First launched in 2018, CLSNet uses blockchain for bilateral payment netting calculations. It only recently started piloting PvP settlement as part of the offering, but that aspect does not use blockchain. A dozen banks are part of the PvP pilot, including Bank of America, BNP Paribas, Citigroup, Deutsche Bank, JP Morgan, Natwest, and UBS.
Meanwhile, the technology that underpins the FX Everywhere platform is the CORE distributed LEDGER from Baton Systems. While others might label it an enterprise blockchain, it’s not strictly a blockchain, so Baton prefers to call it a DLT. CORE is used in other high profile blockchain applications, including for settling derivatives margins, which JP Morgan uses.
