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CLS's blockchain payment netting service ‘CLSNet’ goes live

Wed, 28 Nov 2018, 11:11 am UTC

Forex exchange (FX) settlement giant CLS has announced that its blockchain-based payment netting service is now live with Goldman Sachs and Morgan Stanley.

The service, called ‘CLSNet,’ has been developed for, and in collaboration with, buy-side and sell-side institutions. It is a standardized, automated bilateral payment netting service for over 120 currencies operating on a distributed ledger technology (DLT) platform.

CLS first revealed its plans to develop a DLT-based payment netting service, in collaboration with IBM, back in September 2016. Running on the Linux Foundation's Hyperledger Fabric blockchain framework, CLSNet is the first global FX market enterprise application running on blockchain in production.

The current lack of standardization and automation introduces risk and operational inefficiencies for market participants. This is further aggravated by the high settlement costs associated with emerging market currencies, despite their increased relevance for FX market participants.

In addition, several FX market participants opt to settle on a gross basis, which have full exposure to settlement risk, resulting in higher intraday liquidity demands and causing institutions to hold more capital.

According to the official release, CLSNet has been designed to standardize and increase the levels of payment netting in the FX market for trades not settling in CLSSettlement. By standardizing and automating the calculation of payment netting, it can reduce costs for market participants and increase liquidity in FX markets. The service also supports compliance with certain principles of the FX Global Code of Conduct.

"We are excited to be launching CLSNet, the first service of its kind to be operated on a DLT platform. Further, this offering demonstrates how we are using our unique, trusted position at the center of the FX market to solve industry challenges,” Alan Marquard, Chief Strategy and Development Officer, CLS, said.

"A standardized and automated payment netting process will lead to improved intraday liquidity, reduced cost, improved operational efficiencies and ultimately support business growth."

In addition to Goldman Sachs and Morgan Stanley, six additional participants from North America, Europe and Asia, including Bank of China (Hong Kong), have committed to joining the service.

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