Blockchain Grows Up: World’s First Real Financial Markets Solution Goes Live
The first global FX market enterprise application running on blockchain has gone live, with Goldman Sachs and Morgan Stanley among its initial eight users.
Operator CLS, which settles some $ 5 trillion daily, anticipates that the system, CLSNet, will optimise intraday liquidity, improve operational efficiency, and reduce settlement risk.
As first reported by Computer Business Review, the FX settlement firm worked closely with IBM to develop the payment netting system, which is built on IBM’s Hyperledger Fabric-based distributed ledger technology (DLT). IBM’s blockchain lead, Marie Wieck, described the launch as “testament to the ongoing maturity of blockchain technology and the value that it can deliver in practice.”
Netting entails offsetting the value of multiple positions or payments due to be exchanged between two or more parties, for example to account for currency volatility caused by timezone difference. It can be used to determine which party is owed remuneration in a multiparty agreement.
Blockchain to Resolve Settlement Disputes
A whitepaper by IBM and CLS suggests that the former’s blockchain solution can handle the 2.9 million daily transactions that lead to an average of 25,000 disputes annually and tie up about $100 million in capital. Through use of the system, the time to resolve disputes is expected to drop from more than 40 days to fewer than ten, improving capital efficiency by 40 per cent.
Speaking at IBM Think, CLS’s Chief Strategy and Development Officer Alan Marquard said: “People in the markets currently spends thousands and thousands on reconciliation and even litigation, trying to settle every little thing…”
He added, however, on the broader use of blockchain in the financial services sector: “If there is one thing I would say it’s that tech providers need to have respect for business knowledge.”
“What you want to disrupt is inefficiency… but if something looks inefficient there may be 1000 reasons for that: regulators may be intolerant of change, for example. Disruption may sound exciting but make sure you do it with those who know the business processes you are trying to solve.”
“If I have to be brutal… in the early days of blockchain there was a lot of pretty uninformed promise of changing the world, by people who haven’t taken the effort to understand the space.”
CLS said: “It’s important that blockchain-based solutions leverage the capabilities of the wider organization. We started by extending an existing process to augment a service, a consideration that reduced risk. This enabled us to deliver a blockchain-based solution that is integrated with an existing ecosystem spanning processes, governance and supporting applications.
“Instead of replacing a business process with a new one or reengineering it entirely, we found during one of our first projects, at the IBM Global Financing (IGF) Unit, that adding new functionality to an existing process is a good place to start. At IGF, which extends credit to partners who purchase from IBM suppliers, we began with dispute resolution, which had been a lengthy and labour intensive process. IGF’s blockchain for dispute resolution can handle the 2.9 million transactions that lead to an average of 25,000 disputes annually and tie up about USD 100 million in capital. As a result, the time to resolve disputes is expected to drop from more than 40 days to fewer than ten, improving capital efficiency by 40 percent.”
IBM also offers its IBM Blockchain Platform Starter Plan, priced affordably for most medium to large enterprises. The news comes as IBM announced a host of new clients for its blockchain offering. These include Telefónica which is working on a proof-of-concept to help solve one of the major challenges of operators, the management of international mobile phone call traffic.
“The project resolves in real time the veracity and traceability of the information generated by the different networks of the operators when they route an international call thanks to a decentralised platform to which all the operators that intervene in the process have access. As a consequence, fraudulent behaviors and discrepancies between the information recorded by each operator are significantly reduced,”.
