FXCH clears Blockchain-settled institutional Spot-FX trades
Posted: 5 July 2016 | FXCH | No comments yet
Newly established FXCH cleared the first ever institutional Spot-FX transaction on a Blockchain last Friday…
On Friday, Irish-based startup FXCH Ltd. (the FX Clearing House) cleared the first ever institutional Spot-FX transaction on a Blockchain.
The newly established Clearing House, a member-based financial utility for Spot-FX clearing, accepted and novated its first trades from e-FX trading platforms using a distributed ledger for settlement. From today, members (or their clients) can submit trades transacted on any institutional FX platform to be cleared and settled by FXCH. The use of a Blockchain offers full transparency to the settlement process, giving trust to the participants in the integrity of the clearing system.
When asked what benefits the Blockchain brings to FXCH for Spot-FX settlements, Franck Mikulecz, founder of FXCH responded: “We embraced the Blockchain technology for its strongest but most overlooked property: the trust machine. Streamlining steps to settle FX trades at a fraction of the current costs is brilliantly disruptive. But the ledger opens the possibility of creating a level of trust only Tier-1 Banks are enjoying today, without the need to rely on $100Bln balance sheet. That is a true revolution”.
Commenting on why no one had come up with a concrete application like Blockchain FX before, despite all the time and capital being invested in Blockchain by banks, exchanges and large industry consortium, Martin Dyring-Andersen, FXCH’s CTO said: “In order for a technology to find its place, it needs to be understood by a majority in an industry. By combining best of breed Blockchain technology with our domain specific know-how, we offer all participants a transparent distributed proof of ownership overcoming the hard trust objections plaguing today’s process of settling FX trades.”
To date, Foreign Exchange – the largest capital market by daily turnover ($5.3 trillion at last BIS survey) – is largely controlled by banks. FXCH believe the state of clearing FX as an asset class is archaic, expensive and ripe for disruptive innovation. Every Spot-FX transaction, no matter its purpose, ends-up settled between two banks bilaterally. It is the risks involved with non-delivery that have all but barred non-bank financial institutions from operating them autonomously, due mostly to lack of counterparty trust.
Focusing at first on non-bank participants and the majority of the 2x $225bn they execute on institutional e-FX platforms daily, FXCH aims at solving the counterparty trust problem by organising the governance of its member-based clearing organisation with rules, a guaranty fund and tightly controlled default mechanisms.
According to Mikulecz: “Our work is greatly facilitated by the incumbent Tier 1 banks generally pulling out of the FX Prime Brokerage market. Banks are no longer inclined to lend their credit lines for their clients to trade FX, and the gap this leaves in the market isn’t filled adequately by Prime-on-prime providers.
Justyna Hammon, FXCH’s head of business development added: ”With an open-for-business policy and a fast onboarding process, eventually FXCH wants to become the go-to central counterparty for all Spot-FX participants globally.”