Goldman Sachs and Morgan Stanley Adopt CLS IBM-Powered Blockchain

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The bank-owned currency trading utility, CLS together with IBM have launched their much anticipated blockchain-based payment netting service. The service spent over two years in the development phase. Morgan Stanley and Goldman Sachs are the pioneering investment banking companies to implement the CLSNet platform. They are set to get joined shortly by six other participants from Asia, Europe, and North America, including Bank of China based in Hong Kong.

The Technology Managing Director at CLS, Ram Komarraju said that they had matched and confirmed the first transactions. Also, he confirmed that they had already issued a netting report to all their counterparties. CLSNet is the third blockchain consortium along with we.trade that was launched in late June and IBM Food Trust powered by IBM tech to go live this year.

Therefore, it is one of the few major successful enterprises distributed ledger technology (DLT) projects of any nature that have developed this far. The launch of the CLSNet platform, managed by two of the largest banks worldwide, proves that the blockchain technology is reaching maturity. Also, it highlights the extensive value that the new disruptive technology can deliver when put in practice.

This launch represents the first ever post-trade production deployment of blockchain enhancing efficiency in a global market utility. According to Marie Wieck, general manager at IBM Blockchain, implementation of this technology is set to unleash new market potentials in the future.    

    

Filling Gaps

CLS, although not yet widely popular, offers critical plumbing to the forex markets. The firm mitigates settlement risk for many participating banks since its launch in 2002. They mitigate using a “payment versus payment” service in which both sides of a trade are completed simultaneously. However, the new platform is designed to solve current forex market issues such as a lack of automation and standardization.

Currently, a restricted number of participants net trade with each other often. Even when they do that, manual management of the process is necessary according to CLS and IBM. Also, most participants settle on a gross basis instead of netting the payments for forex trades. This occurrence exposes the participants to settlement risks that lead to higher intraday liquidity requirements.

Adam Josephart of Morgan Stanley believes that CLSNet will deliver the automation and standardization necessary for most non-CLS settled transactions. Barry Lo, the general manager for the Bank of China (Hong Kong) bank-wide operation department said that CLSNet will significantly improve operational efficiency in payment netting and trade matching. The new technology is viable for non-CLS settled currencies like CNH.

CLSNet will also strengthen the company’s risk management infrastructure. The now-live CLSNet platform functions for at least 120 fiat currencies and it is meticulously designed to homogenize and enhance payment netting level in the forex market. The technology was developed with close cooperation with sell-side and buy-side institutions. The platform also fully supports compliance with a particular code of conduct for forex markets that CLS helped develop.

A uniform and automated payment netting process will reduce cost, enhance intraday liquidity, increase operational efficiency, and eventually support business growth.

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