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CLS, the bank-owned currency trading utility, and IBM have launched their blockchain-based payment clearing service after more than two years of development.
Giants investment banks Goldman Sachs and Morgan Stanley are the first companies to use the new CLSNet, along with six other participants from North America, Europe and Asia, including Bank of China (Hong Kong), who have committed to join the group in the coming months, according to the newspaper. to CLS and IBM.
Ram Komarraju, General Manager of Technology at CLS, told CoinDesk that the system was operational and that it was operational:
"We compared and confirmed the first transactions and successfully issued a counterparty compensation report."
In addition to the IBM Food Trust chain of food traceability chains launched in October and the we.trade trade finance platform, launched in late June, CLSNet is the third consortium of chain chains powered by IBM Tech put into production this year.
As such, it is one of the few major DLT (Enterprise DRL) projects from all walks of life to reach this stage.
"With CLSNet in production with two of the world's largest banks, for a major market function, this is testament to the current maturity of blockchain technology and the value it can generate in practice," he said. Marie Wieck, General Manager at IBM. Blockchain, in a press release.
The launch of CLSNet, she said, represents "the first post-negotiation deployment of blockchain technology in a public service on the global market".
Fill gaps
Although not being a household name, CLS provides essential piping for the forex or forex markets. Founded in 2002, it mitigates settlement risk for participating banks with a "payment-for-payment" service, in which both sides of a transaction are completed at the same time.
But its new platform aims to solve the current problems of the foreign exchange market, such as the lack of standardization and automation.
For example, a limited number of participants are currently trading neatly with each other, and even when they do, it is often necessary to manage the process manually, according to IBM and CLS. In addition, many participants do not compensate payments for foreign exchange transactions, but settle on a gross basis, exposing them to settlement risk and leading to higher intraday cash requirements, the companies said.
"CLSNet will provide the standardization and automation needed for non-CLS settled transactions," said Adam Josephart, managing director of Morgan Stanley's fixed income division.
Barry Lo, general manager of the bank's operations department at the Bank of China (Hong Kong), added that CLSNet in particular "will enhance operational efficiency in transaction reconciliation and payment clearing for foreign currencies." not regulated by CLS such as CNH [the offshore version of China’s renminbi]and strengthen our risk management. "
The CLSNet network, now operational, operates for more than 120 fiduciary currencies and is designed to standardize and increase the level of payment clearing on the foreign exchange market. It has been developed in collaboration with buying and selling institutions. At the same time, the platform supports compliance with a code of conduct for foreign exchange markets that CLS has helped to develop, the company said.
"A standardized and automated payments clearing process will result in improved intraday liquidity, reduced costs, improved operational efficiencies and, ultimately, support for business growth," said Alan Marquard. Director of Strategy and Development at CLS.
First explorer
CLS and IBM have developed CLSNet on the Hyperledger Fabric blockchain. However, CLS has been experimenting with blockchain technology since early 2015, before the start of the Hyperledger consortium.
These attempts eventually culminated in CLSNet, with Bank of America, Bank of China, UFJ Bank of Tokyo-Mitsubishi, Citibank, Goldman Sachs, JPMorgan Chase and Morgan Stanley at the September 2017 unveiling.
From the beginning, CLS worked with IBM on blockchain solutions. However, in May this year, the forex trading utility announced a $ 5 million investment in another major enterprise DLT provider, R3.
Still, the R3 platform will not be used for the current services CLS is working on, Komarraju told CoinDesk.
"Our investment in R3 has no impact on the future development of our products using Hyperledger Fabric, because we do not believe that DLT should be a" single network universe "," he said.
"We believe that the sector will benefit from a choice of suppliers. That's why we chose to align with two key suppliers, R3 and IBM, in the DLT space. "
At the same time, CLS and IBM have expanded their collaboration. This summer, the two companies announced the validation of the concept of their separate project called LedgerConnect, an "application store" based on financial blocks offering services based on the DLT protocol for customer knowledge processes, the verification of sanctions, the management of guarantees, the treatment and the reconciliation of derivatives. and market data.
Currency trading image via Shutterstock.
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