The post-trade solutions provider is using technology from Baton Systems for the new service.
Post-trade solutions provider OSTTRA is collaborating with Baton Systems to launch an on-demand payment-versus-payment (PvP) settlement service for foreign exchange (FX) transactions that is intended to mitigate bilateral settlement risk, officials say.
The PvP system is also intended to optimize intraday funding, liquidity, and credit risk, officials add.
The OSTTRA system will use Baton’s distributed ledger technology (DLT) “designed to mitigate settlement risk in the US$2.2 trillion of daily FX turnover settled outside CLS [a multi-currency settlement system for FX transactions],” officials say. “The service will be open to FX market participants globally – including market maker banks, investment managers, and large corporates. Initial participants include HSBC and Wells Fargo.”
The new OSTTRA service follows a decision by the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) to push for “an increase in the adoption of PvP in FX transactions to reduce FX settlement risk,” officials say. “As of April 2022, the Bank for International Settlements (BIS) said that there could be settlement failures in US$2.2 trillion daily deliverable FX turnover because it either sat outside PvP platforms or as ‘on-us without loss protection’ trades.”
“The launch represents the first step in a broader OSTTRA strategy to improve the market structure of OTC markets,” according to OSTTRA. “It is intended that the service will evolve to include settle-to-market functionality, significantly reducing derivative counterparty exposures, therefore reducing the regulatory capital required under SA-CCR (Standardized Approach to Counterparty Credit Risk).”
The partnership will have OSTTRA operation Baton’s Core-FX service, “including administration of the rulebook, which governs the end-to-end process and encompasses the secure orchestration of funds, and which provides the framework for achieving final settlement,” according to the announcement. “HSBC and Wells Fargo, early adopters of Core-FX as part of the HSBC FX Everywhere initiative, will join the OSTTRA-operated service during the first half of 2024.”
OSTTRA encompasses MarkitServ, Traiana, TriOptima, and Reset.
Baton Systems, which offers DLT-based solutions for post-trade processing, was founded in 2016 by Silicon Valley technologists and capital market specialists, officials say.
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