Fnality has integrated its distributed ledger technology (DLT) settlement solution with OSTTRA‘s foreign exchange (FX) payment versus payment (PvP) network, expanding settlement options for FX transactions.
The integration builds on last year’s adoption of Baton Systems‘ PvP solution, Core FX by industry post-trade platform OSTTRA. The combined platform now supports settlement using Fnality’s tokenized central bank reserves, in addition to the commercial bank money previously available through the PvP solution.
Fnality currently operates in sterling, with US dollar capabilities under development and additional currencies planned. The OSTTRA integration allows Fnality users to access FX transaction capabilities ahead of the platform’s expansion into other currencies.
Addressing FX settlement risks
The Committee on Payments and Market Infrastructures (CPMI) has identified foreign exchange settlement risk as a significant concern. An estimated $2.2 trillion in daily FX transactions settle outside of CLS, exposing the market to settlement risk that could pose systemic problems during a crisis.
Payment versus payment solutions address this risk by ensuring both sides of a transaction settle simultaneously. In DLT terminology, this is known as atomic settlement, with platform rulebooks providing contractual assurance of settlement finality.
Integration details
A proof of concept between the two platforms involved sterling in central bank money exchanged for another currency in commercial bank money. The integration combines the intraday settlement and netting capabilities of the PvP solution with Fnality’s 24/7 availability.
“Joining the OSTTRA and Baton PvP network marks a significant milestone in our mission to make institutional-grade digital settlement a practical reality,” said Michelle Neal, CEO of Fnality. “This integration is the first step in bringing true PvP capabilities to our customers, enabling them to settle FX transactions using a digital record of funds held at the central bank, and introducing greater choice and flexibility into the settlement landscape.”
Neal added that the collaboration “lays important groundwork for more resilient and efficient FX markets by reducing risk, enhancing liquidity, and supporting atomic, instantaneous settlement at any time of day.”
DLT platform adoption
Both platforms serve major financial institutions. Fnality is backed by 20 institutions, primarily large banks but also including the DTCC and Nasdaq. The first three banks to go live were Lloyds Bank, Santander and UBS.
HSBC was the initial user of Baton Systems’ Core FX, which processed $8 trillion of FX transactions before the OSTTRA integration, with Wells Fargo serving as a counterparty in some cases. OSTTRA reports engagement with 12 major banks working to develop the solution further.
Unlike Fnality, the PvP solution uses DLT for workflow and orchestration rather than tokenization.
Broader implications
The integration represents progress toward Fnality’s goal of enabling banks to aggregate liquidity currently siloed across separate venues. Integration with OSTTRA and potentially other platforms with PvP solutions, such as Partior, could help realize this vision.
Separately, OSTTRA owners CME and S&P Global agreed last month to sell the company to KKR for $3.1 billion.
Ledger Insights has published a report on the bank adoption of stablecoins, tokenized deposits and DLT payments. In addition to 70 projects, it explores design features, such as how to avoid pitfalls that could limit their longer term potential.
