Blockchain firms join forces to tackle global FX market inefficiencies
by Ben Poole
Fnality and Finteum have announced they are working together to deliver interoperability between the Finteum application, built on R3’s Corda platform, and Fnality’s Utility Settlement Coin (USC) solution, which is based on Ethereum.
The interoperability focuses on intraday foreign exchange (FX) swaps between large institutions and hopes to enable FX intraday trading without settlement risk and with instant execution.
FX is the world’s largest and most liquid market but is traded over disparate and often outdated systems and technology, leading to issues such as duplicative processes.
“The FX settlement process needs increased transparency and traceability," commented David E. Rutter, CEO at R3. "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."
How the collaboration will work
Finteum will use R3’s Corda platform to create a global financial market for intraday liquidity. Using Finteum, market participants now have a shared data record of their orders and trades, which means settlement will not fail and it will be easier to share market information with third parties, such as regulators.
Fnality provides a digital cash system that uses blockchain technology to settle financial transactions in a way that is designed to bring more transparency and efficiency to the FX market.
“Any attempt for a bank treasurer to execute an intraday FX swap involves settlement risk and timing uncertainty in the current market," said Brian Nolan, co-founder of Finteum. “Despite this, intraday FX swaps are an untapped source of value for bank treasurers. Large banks could each save millions by creating efficiencies in their intraday liquidity. 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.”
The collaboration will also allow for instant settlement, in effect creating a new trade settlement business model. Using Finteum, funds in USC can be reversed before an order is placed in the Central Limit Order Book.
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.
“In addition to cost savings, the availability of USC as a payment asset offers new revenue potential to FX trading desks, brokers, and trading platforms," said Olaf Ransome, chief commercial officer at Fnality. "They will be able to earn returns by lending out cash that they are not using, or by bringing more market liquidity to the future markets in intraday FX swaps.”
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