OSTTRA has launched a FX payment-versus-payment (PvP) service aimed at mitigating settlement risk in FX transactions not settled on CLS – a segment that, according to figures from CPMI in 2022, amounted to 2.2 trillion dollars in turnover daily. To power the solution, OSTTRA has taken over the operation of Core-FX, a DLT-based solution from fintech firm Baton Systems.
In a statement announcing the new service, OSTTRA reveals that it was in part motivated by a recommendation put out last year by The Bank for International Settlements’ (BIS) Committee on Payments and Market Infrastructures (CPMI) to increase the adoption of PvP in FX transactions to reduce FX settlement risk. According to CPMI, the transactions at risk of failures usually sit outside of PvP platforms or are “on-us without loss protection” trades.
The focus of the new solution is on “settling flows not currently settled on CLS, including non-CLS eligible transactions”. It will also remove the need to meet CLS’ cut-off window, thus enabling intraday settlement and giving market participants more flexibility.
More to come
OSTTRA claims that this is the first step in its broader strategy to improve the structure of OTC markets. A future plan for the service is to include settle-to-market functionality, which should reduce derivative counterparty exposures, resulting in a reduction in the regulatory capital required under the Standardised Approach to Counterparty Credit Risk (SA-CCR).
To date, Baton’s Core-FX solution has settled more than US$8.1 trillion in transactions. Besides taking over its operation, OSTTRA will also be handilng the administration of the rulebook. The new service will be made available to FX market participants globally, with HSBC and Wells Fargo as early adopters who will join the service in the first half of 2024.