Foreign Exchange Trading Market (forex) settled powerhouse on July 27. CLS system reported that it was the final stages of testing of its blockchain payment service for banks. However, the service is set to launch as soon as possible in August. The amount of players backing the project has halved since the initial announcement. Large financial institutions are not quite ready to handle their data to a blockchain-powered system.
Introduction to forex and CLS system
Forex is a worldwide market. Convertible currencies are traded there. Their conversion rates are also determined. Albeit decentralized that it is the largest and most liquid market in the world. According to the Bank for International Settlements (BIS) data, the trading got at an average of $5.1 trillion per day in April 2016. Forex relies on over-the-counter type deals, larger participating players i.e., International Banks. They strive to mitigate the settlement risk associated with their forex transactions.
Continuous Linked Settlement (CLS), a U.K.-based financial institution has the U.S. Federal Reserve Bank as its primary regulator. It provides customers the thing forex players need risk-reducing settlement services. CLS minimizes the perils through payment versus payment (PvP) settlements. It is the process of ensuring a final transfer of one currency. It occurs only if a final transfer of the other currency takes place.
CLS was founded in 2002. It has been rapidly growing since. In July 2012, it officially became a Systemically Important Financial Market Utility. By March 2017, it was handling over 50 percent of forex transactions globally. CLS’s members include more than 60 of the world’s largest financial institutions, such as JPMorgan Chase, Barclays, Goldman Sachs and Citigroup.
Relationships of Blockchain with CLS, IBM, and R3
CLS is no new to the blockchain. It began researching distributed ledger technology (DLT) proofs-of-concept (PoCs) back in 2015. The technology was in its earlier stages. The prospect of mass adoption barely existed. In September 2016, the early CLS blockchain experiments were put under CLSNet. It is a network that essentially played the role of a sandbox for DLT-powered attempts. It streamlines CLS’s internal processes at the time.
In conjunction with IT giant IBM, it aimed to ensure intraday liquidity, enable real-time awareness of currency and reduce risk, among other goals. At the time, CLS Netting allows participants to submit forex instructions for six products and 24 currencies.
Notably, CLS has been cautious. It is not to put into the main settlement system. It is favored by the world’s largest financial institutes on the blockchain. It becomes fully tamper-proof from their viewpoint. The 2017 joint report presented by CLS and IBM.
Blockchain-Powered Settlement System:
Originally, Blockchain-Powered Settlement System was announced back in September 2016. The project was backed by 14 large institutions, including Bank of America, Bank of China – Hong Kong, HSBC and Morgan Stanley. Other banks preferred the wait-and-see approach. Ram Komarraju, head of innovation and technology at CLS told in 2017.
The service is almost ready. It is expected to launch by the end of the summer. Half of the 14 banks originally signed up. But, CLSNet has reportedly dropped out of the program. Still, there are much fewer players that are expected to enlist themselves for CLSNet. CLS might convince the majority of banks to join later.
LedgerConnect and collaborations with organizations like R3 gather different law firms to educate lawyers globally. Its goal is to bring the mass adoption of the technology by steadily pushing global banks to swap their traditional tools with new blockchain ones.