Last year Baton System‘s PvP solution, Core FX, was adopted by industry post trade platform OSTTRA. Now they have announced the integration of the FX PvP platform with Fnality‘s DLT settlement solution. Previously the PvP solution supported only commercial bank money, whereas Fnality’s settlement instrument is backed by tokenized central bank reserves. So far Fnality is live in sterling, with US dollars a work in progress and other currencies planned.
By integrating with OSTTRA’s PvP system, Fnality users can use it for FX transactions today, before it goes live in other currencies.
Stepping back, the Committee on Payments and Market Infrastructures (CPMI) has repeatedly raised concerns about FX settlement risks. An estimated $2.2 trillion in foreign exchange transactions (FX) daily is settled outside of CLS. In a crisis that could be a massive problem. One way to address that risk is with greater adoption of payment versus payment (PvP) solutions, which ensure both sides of a transaction settle simultaneously or atomically in DLT lingo. A platform rulebook contractually ensures settlement finality.
Combining Fnality with OSTTRA
The proof of concept already conducted with the two platforms involved sterling in central bank money exchanged for another currency in commercial bank money. This integration combines the intraday settlement and netting benefits of the PvP solution with the 24/7 availability of Fnality.
Both platforms are used by some of the largest banks in the world. Fnality is backed by 20 institutions, mainly large banks but also including the DTCC and Nasdaq. The first three banks to go live on the platform were Lloyds Bank, Santander and UBS.
HSBC was the first user of Baton System’s Core FX, which processed $8 trillion of FX transactions prior to the OSSTRA integration, in some cases with Wells Fargo as the counterparty. Today OSSTRA says it has engaged with12 major banks looking to develop the solution further.
More to follow
Ledger Insights has published a report on the bank adoption of stablecoins, tokenized deposits and DLT payments. In addition to 70 projects, it explores design features, such as how to avoid pitfalls that could limit their longer term potential.
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