Fnality's DLT settlement system links up with OSTTRA's FX Peer-to-Peer network

Fnality's DLT settlement system links up with OSTTRA's FX Peer-to-Peer network

In a significant move towards modernising and digitising wholesale financial market infrastructure, Fnality and OSTTRA have integrated their distributed ledger technology (DLT) settlement solutions. This integration aims to improve settlement efficiency, reduce risk, and enable real-time cross-border payments.

Fnality's platform offers a tokenized central bank reserves-based settlement instrument, which substantially lowers settlement risk in payment transactions. By integrating with OSTTRA's foreign exchange (FX) payment versus payment (PvP) system, foreign exchange transactions can now settle simultaneously on both currency legs, ensuring payment finality and eliminating payment risk.

The integration enables real-time settlement compared to traditional delayed clearing cycles, increasing operational efficiency and reducing the need for large liquidity buffers. It also facilitates more efficient and intelligent liquidity management across borders due to Fnality's DLT capabilities.

The combined networks support interconnected global settlement infrastructures, which can lead to more resilient and integrated financial markets with improved cross-border FX and swap transaction processing. Major banks such as BNP Paribas, Lloyds, Santander, and UBS have already adopted Fnality’s solution, underscoring broad industry confidence in the platform’s capabilities.

The integration reduces settlement risk by using tokenized central bank reserves and simultaneous PvP settlement. It enables real-time, efficient, and automated FX payment and swap transaction settlement. It also improves liquidity management and lowers operational costs for participant institutions. The integration potentially builds towards an interconnected global network for cross-border payments with enhanced interoperability among platforms like DTCC’s digital asset infrastructure.

The first three banks to go live on Fnality were Lloyds Bank, Santander, and UBS. 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.

OSTTRA reports engagement with 12 major banks working to develop the PvP solution further. The integration between the two platforms involves sterling in central bank money exchanged for another currency in commercial bank money. Payment versus payment solutions, such as the one used by OSTTRA, address this risk by ensuring both sides of a transaction settle simultaneously.

Ledger Insights has published a report on the bank adoption of stablecoins, tokenized deposits, and DLT payments, exploring design features and avoiding pitfalls that could limit their longer-term potential. OSTTRA has integrated with Fnality, potentially integrating with other platforms with PvP solutions, such as Partior. Wells Fargo served as a counterparty in some cases for HSBC using Baton Systems' Core FX.

OSTTRA's owners, CME and S&P Global, agreed last month to sell the company to KKR for $3.1 billion. Fnality is backed by 20 institutions, including major banks, the DTCC, and Nasdaq. Michelle Neal, CEO of Fnality, stated that the integration is the first step in bringing true PvP capabilities to customers, enabling them to settle FX transactions using a digital record of funds held at the central bank.

This integration offers a promising step towards a more efficient, secure, and resilient financial system, particularly for cross-border payments and foreign exchange transactions. As more institutions adopt these technologies, we can expect to see further advancements in the digitisation of wholesale financial market infrastructure.

[1] Reference: Ledger Insights (2022). Bank Adoption of Stablecoins, Tokenized Deposits, and DLT Payments: Design Features and Pitfalls. Retrieved from https://ledgerinsights.com/bank-adoption-of-stablecoins-tokenized-deposits-and-dlt-payments-design-features-and-pitfalls/

1. The collaboration between Fnality and OSTTRA utilizes blockchain technology to improve settlement efficiency and reduce risk in cross-border payments, particularly in foreign exchange transactions.
2. Fnality's platform, which offers tokenized central bank reserves-based settlement instruments, aims to lower settlement risk and enhance real-time, automated FX payment and swap transaction settlement.
3. By integrating with OSTTRA's PvP system, the network enables simultaneous settlement on both currency legs, ensuring payment finality and eliminating payment risk.
4. The integration of Fnality and OSTTRA's systems has the potential to create an interconnected global network for cross-border payments with enhanced interoperability among platforms like DTCC’s digital asset infrastructure.
5. Ledger Insights' report on bank adoption of stablecoins, tokenized deposits, and DLT payments highlights the design features and potential pitfalls of these technologies, including those used by platforms like Fnality and OSTTRA.

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