$5 Trln FX Settlement Giant CLS to Launch Blockchain-Based Netting Service ‘Within Days’

Forex exchange (FX) settlement giant CLS will launch its IBM blockchain-powered netting service within “a matter of days,” according to Chief Strategy Officer (CSO) Alan Manquard. The CSO made the announcement at the IBM Think Tank conference in London Nov. 14, as reported by tech news source Computer Business Review (CBR).

CLS Group, which reportedly settles on average $5 trillion in payment instructions daily, is a U.S. FX settlement service supplier with high-profile members that include Goldman Sachs, JPMorgan, Barclays, and Citigroup.

A netting service entails offsetting and determining the value of multiple positions or payments that are due to be exchanged between parties, accounting for factors such as the currency volatility caused by differences in time zones. In such cases, the service is used to fix the remuneration a given party is owed.

Manquard reportedly claimed before the conference audience that CLS would be “be operating the first ‘enterprise-level, open-for-business service’ based on distributed ledger technology (DLT) in the financial markets.” He further told CBR that the service would “start small” before scaling, then pulling back and saying that the news was in fact under embargo. In response to CBR’s questions on the service volume capacity at launch, he said:

“It doesn’t matter. It will be interesting to see what we are doing by the end of Q1 though. We also start small with something like this and watch closely.”

A joint white paper released by IBM and CLS indicates that the tech giant’s Hyperledger-based blockchain can tackle the 2.9 million daily transactions that are estimated to result in an average of 25,000 disputes per year, locking up around $100 million. It is also expected to reduce the time taken for dispute resolution from forty days to under ten. Manquard told the conference:

“People in the markets currently spends thousands and thousands on reconciliation and even litigation, trying to settle every little thing [...] if something looks inefficient there may be a thousand reasons [...] 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.”

Manquard also noted that “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.”

As reported previously, CLS is planning to offer its members two options to connect to the CLSNet service, providing a direct, as well as an intermediary, connection via the SWIFT financial messaging provider. A CLS spokesperson has clarified that clients would only rely on the SWIFT intermediary at first, while direct node hosting would be offered as “the service continues to grow with functionality and [...] the DLT matures.”