Blockchain-based technology disrupts the $6.6 trillion daily global FX market.
Wells Fargo and HSBC Bank agreed to use a Blockchain-based platform to settle some foreign exchange transactions, a move that’s likely to further disrupt the $6.6 trillion daily global FX market. The December announcement will see the banking behemoths share a settlement ledger to initially process US dollar, Canadian dollar, British pound and euro transactions. Blockchain is also known as distributed ledger technology (DLT). In a statement, the banks said they plan to extend the platform to other currencies, and will settle transactions outside the framework currently managed by US financial institution CLS, a development analysts describe as a wake-up call.
The blockchain will provide each bank with real-time information on the settlement status of paired FX transactions and enable both banks to use payment-vs-payment settlement netting, a development they say will reduce risk.
The platform runs on Baton Systems’ proprietary CORE DLT to settle FX trades in less than three minutes. The offering builds on HSBC’s FX Everywhere platform, which the bank claims settled over three million intrabank trades worth over $2.5 trillion since going live in 2018.
“We are excited to grow the FX Everywhere network while ensuring we are well placed to transact in new forms of regulated digital currencies,” says Mark Williamson, global head of FX Partnerships & Propositions at HSBC. Baton’s success poses a challenge to Ripple’s XRP technology, the first digital system to use blockchain for FX settlement and widely adopted by banks around the world. Still, Ripple reportedly claims its solution achieves settlement finality in seconds.
Meanwhile, State Street, Vanguard and Symbiont have announced they recently deployed blockchain technology for the live trade of a 30-day foreign exchange forward contract using Symbiont’s distributed ledger technology. The technology manages margin processing of foreign exchange forwards and swaps with the aim of achieving post-trade workflow efficiencies.