Fnality and Finteum are partnering to deliver a blockchain-based solution for settling FX swaps transactions.
Finteum leverages R3’s Corda platform to create a global financial market for intraday liquidity. It aims to give market participants a shared data record of their orders and trades, meaning that settlement will not fail and it will be easier to share market information with third parties, such as regulators.
Fnality’s Utility Settlement Coin (USC) initiative, which is based on Ethereum, provides a digital cash system that uses blockchain technology to settle financial transactions.
The collaboration between these two firms is designed to allow for instant settlement of FX swaps. Using Finteum, USC funds are reserved before an order is placed in the central limit order book, and the order can be subsequently cancelled, freeing up the USC.
Banks use the USC to transfer legal ownership of the two currencies using money held at central banks. Finteum’s platform means that this happens atomically, with either both transfers occurring together, or none at all. This version of settlement can occur 24/7, meaning less counterparty risk and fewer intermediaries.
Brian Nolan, co-founder of Finteum, says: “Any attempt for a bank treasurer to execute an intraday FX swap involves settlement risk and timing uncertainty in the current market. Intraday FX swaps are therefore an untapped source of value for bank treasurers. Large banks could each save tens of millions by creating efficiencies in their intraday liquidity. Instant gross settlement doesn’t work for every use case, but is important for the initial payments in intraday FX. Using R3’s Corda platform, we are able to work with organisations at the forefront of industry change – such as Fnality – to deliver crucial responses to market needs. We want to work with three or four banks to support integration and provide feedback while we test and improve the solution and bring it closer to production.”
David Rutter, CEO of R3, comments: “The FX settlement process needs increased transparency and traceability. Corda is fit to deliver on both counts. It was built to be fully interoperable from day one, and Fnality’s USC is a perfect example of how our platform can be used in conjunction with other systems to answer crucial industry needs. We look forward to seeing Finteum continue to create industry-leading initiatives for the financial services sector, supported by cutting-edge technology.”