CLS has announced it will pilot its blockchain foreign exchange solution, CLSNet, with 12 global banks for PvP or instant settlement. First launched in 2018, so far CLSNet enables the netting of foreign exchange (FX) transactions in 120 lesser used currencies. The 18 major currencies are already catered for in the centralized CLS Settlement platform that processes more than $5 trillion in daily trades.
A dozen banks are participating in the CLSNet PvP trial include Bank of America, BNP Paribas, Citigroup, Deutsche Bank, JP Morgan, Natwest, and UBS. Several of the banks are already using the netting solution.
“While establishing an alternative PvP solution to address the expansion of FX settlement risk will take time, we are optimistic that the work currently underway will deliver significant industry-wide benefits,” said Giles Page of Citigroup.
These moves are partly in response to the Financial Stability Board’s Cross Border Payments Roadmap, which encourages greater adoption of PvP. Where both sides of the transaction are settled simultaneously and atomically, counterparty risk is eliminated. However, CLS always planned to add additional functionality to CLSNet beyond netting calculations.
“CLS is uniquely placed at the center of the FX industry to work in partnership with the public and private sector to develop a PvP solution that will address settlement risk for currencies that are not currently eligible for CLSSettlement,” Marc Bayle de Jessé, CEO of CLS.
“CLSNet – our bilateral payment netting calculation service – is already open for approximately 120 currencies, reducing risk and delivering efficient, automated and standardized post-trade netting calculation and processing services for banks, asset managers and corporates across the globe. We are now working with the market to evolve the service to further mitigate settlement risk and unlock liquidity.”
IBM initially worked with CLS to develop the solution on enterprise blockchain Hyperledger Fabric. Back in 2018, there were plans from the two partners for a broader blockchain platform that would include KYC, sanctions screening, collateral management and much more. However, we believe that was quietly shelved.
To date, we’re aware of 11 banks using the CLSNet netting solution. They are Actinver, Alfa-Bank, Bank of America, Bank of China (Hong Kong), BNP Paribas, Citigroup, First Abu Dhabi Bank (FAB), Goldman Sachs, Intesa Sanpaolo, J.P. Morgan and Morgan Stanley.
CLSNet was started when David Puth was CEO at CLS. During his tenure CLS also invested in enterprise blockchain company R3. Puth now heads up Centre set up by Coinbase and Circle. The organization is responsible for the governance of the USDC stablecoin project, the number two stablecoin.