Today OSTTRA announced it will launch an FX PvP settlement service powered by Baton Systems’ Core FX DLT solution. OSTTRA is the post trade joint venture between S&P Global and CME Group.
The Committee on Payments and Market Infrastructures (CPMI) has repeatedly highlighted FX settlement risks. A significant portion of foreign exchange (FX) transactions, estimated at $2.2 trillion daily, are settled outside of CLS. To reduce risks, the CPMI has been encouraging greater adoption of payment versus payment (PvP) solutions, which ensure both sides of a transaction settle simultaneously.
Many new solutions offering PvP use distributed ledger technology but have yet to be launched or are unproven. However, Baton’s Core FX has achieved traction, with HSBC and Wells Fargo accounting for a large proportion of activity. The two banks will join the OSTTRA-operated service in the first half of this year.
“Since 2018, HSBC FX Everywhere has used Baton’s Core FX technology to settle 16 million FX trades across 13 different currencies totaling US$8.1 trillion,” said Mark Williamson, Global Head of FX & Commodities Partnerships & Propositions at HSBC. “Using OSTTRA as a post-trade platform, the wider market will now be able to use the same technology to reduce their FX settlement risk through PvP settlement and compression, as well as optimising their cash flows. Overall, this will significantly mitigate Herstatt risk in the market.”
OSSTRA will also take on Baton’s rulebook, which provides a contractual framework to achieve finality in settlement.
Baton has taken a very pragmatic approach to the adoption of DLT. It only deploys DLT where it sees it as adding value. The technology is particularly used for smart contracts and orchestration rather than tokenization.
