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11 banks trial blockchain-based platform for intraday FX swaps with a potential of going live in 2021

11 banks trial blockchain-based platform for intraday FX swaps with a potential of going live in 2021
Jordan Major

A group of 11 banks, including Deutsche Bank and NatWest, tested a Distributed Ledger Technology-based platform for intraday FX swaps. 

Blockchain startup Finteum reported the banks are trialling their blockchain technology with the potential of going live in 2021 or by early 2022.

The daily volume in the market for FX swaps is typically within the vicinity of $3.2 trillion. Customarily FX swaps are often lengthy overnight procedures.

Finteum, the company behind the tech, has been working on the blockchain-based intraday FX swaps platform to reduce this since announcing it together with R3 and Fnality in 2019.

The trial shows encouraging signs

The trial oversaw the 11 banks engaging in simulated trading and discussion sessions. During one-hour-long mock trading sessions, the banks executed 76 intraday FX swap transactions based on 66 orders in a central limit order book and 69 bilateral RFQs.

Banks participated with $14.5 trillion in combined balance sheet values and the ultimate plan of moving to live transactions to the end of this year or early 2022.

Finteum co-founder, Brian Nolan, stated: 

“We are excited for the next phase of development. The engagement and feedback from the banks during the trial were very encouraging. It reinforces the value the initiative can offer to banks across all geographies.”

Cost optimization

According to BIS figures, global FX daily trading in 2019 amounted to $6.6 trillion daily, of which $3.2 trillion were FX swaps.

“While every bank treasury team is focused on controlling costs, efficient optimization of liquidity buffers is often overlooked by senior management.<…>It is great to see the banks from the trial encouraging their peers to join the initiative and optimize the cost savings for all involved,” – Nolan said.

By using intraday swaps, banks can efficiently meet temporary liquidity needs as treasury teams can borrow for hours at a time. Banks create new revenue streams as a result as they can lend excess funds while enhancing intraday liquidity buffers.

Essentially Finteum is introducing another tool to manage intraday liquidity beyond buffers and payment throttling. The initial spot exchange and the second reverse exchange happen on the same day instead of a two-day settlement.

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