Yesterday Singapore’s Partior announced it completed a proof of concept for FX payment versus payment (PvP) settlement using its blockchain network. Participants include two of its co-founders, JP Morgan and DBS Bank, as well as Japan’s third largest bank, Mizuho.
Partior already has a production solution to enable instant 24/7 cross border payments via correspondent banks. Other founders include Standard Chartered and Temasek.
The importance of PvP
The bulk of world’s foreign exchange (FX) transactions are settled centrally through CLSSettlement, which processed $6.6 trillion in FX Payment instructions daily during 2023, reaching a peak of $16.3 trillion on one day in December. However, it only covers 18 currencies. It has a DLT netting solution for other currencies, CLSNet, but that does not support PvP settlement.
The importance of PvP is that both currency legs are exchanged simultaneously, removing the settlement risk. In DLT parlance, it is atomic settlement for foreign currencies.
A report by the BIS Committee on Payments and Market Infrastructures (CPMI) found that PvP coverage declined from 50% to less than 40% between 2006 and 2019. That’s partly because of the growing role of emerging markets, and PvP isn’t always possible because settlement may only be allowed between certain jurisdictions.
More worryingly, a 2019 survey found the risk of loss is as high as $2.8 trillion daily. For three countries (the UK, Hong Kong and Singapore), the potential losses outweigh the combined supervisory capital of the country’s banks.
The Partior PoC
The recent trials addressed precisely this settlement risk, for both emerging market and advanced economy currencies. Additionally, it supports 24×7 real-time atomic settlement. If the parties don’t want to settle instantly it supports same-day value trades. Partior plans to go live with this solution later this year.
“By automating settlement matching through smart contracts, we’re not just reducing operational risks and costs, but also unlocking new business opportunities, particularly across EMDE currencies,” said Kelvin Tan, DBS Head of innovation for Global Financial Markets. “The capability holds the promise of making settlement more efficient while fostering greater financial inclusion and economic growth in the region.”
Other DLT PvP solutions
There’s an existing DLT-based PvP solution that’s already in use at scale. Between 2018 and early 2024, HSBC’s FX Everywhere was used to settle 16 million FX trades worth more than $8 trillion. It used Baton System’s Core FX solution, as did Wells Fargo. In March this year Baton signed a deal for the solution to be operated by OSSTRA, the post trade joint venture between S&P Global and CME Group.
Another company that has plans for DLT FX PvP is Fnality, the joint venture between 20 institutions. It took years for the company to get a UK license to operate a shared settlement system with a settlement token backed by central bank deposits. In order to enable PvP, it needs the clearance of additional central banks and is targeting the United States and Europe. Fnality is unlikely to target emerging markets in the near term.
Hence the PvP opportunity for Partior.
