Spanish exchange operator BME has received approval from the Bank of Spain to implement BME FXS, a new system that settles foreign exchange (FX) transactions in a payment-versus-payment mode. Designed to “improve efficiency and reduce the risks associated with FX transactions”, FXS is targeted at FX transactions, many of which are currently settled bilaterally.
One of the biggest issues with bilateral settlement is that one of the counterparties risks losing the total transaction amount if the other does not deliver the sold currency. BME claims that there is demand from banks and financial institutions for a solution to “the inherent problems of bilateral currency settlement”. In its press release, the firm gives the example of the rapid consumption of credit lines, which reduces potential business between entities.
Other functionalities offered by FXS include integration of the service into the SWIFT network and netting of all transactions between two counterparties.
The FXS system will be made available to any financial institution in the EU and Switzerland.
