Multi-currency cash settlement system provider CLS is building a payments netting service that will enable cash trades on IBM’s Fabric blockchain.
Unveiled today at the Sibos financial industry conference in Geneva, the service will mark the entrance into a new business category for New York-based CLS, which is historically known for providing settlement for traditional currency trades.
Early banks that have agreed to support the new blockchain platform include Bank of America, Bank of China (Hong Kong), Bank of Tokyo-Mitsubishi UFJ, Citibank, Goldman Sachs, JPMorgan Chase and Morgan Stanley.
During a press event announcing the service, CLS Group CEO David Puth argued that the company’s wide customer base and global presence gives it an edge in bringing a new blockchain-based solution to the market. In addition to the more than 60 members of its settlement service, CLS does business with 21,000 institutions worldwide, he said.
Puth told event attendees:
“We consider that a very rich audience to adopt this new service.”
The project, currently underway, is expected to take 12 to 18 months to build.
Of the initial 14 participants, 12 come from the sell side, and two from buy-side, with a number of other clients close to announcing participation. CLS managing director Ram Komarraju said the offering will be built on a closed blockchain.
Traditionally, CLS has helped ensure counterparties who are conducting foreign exchange trades receive funds by simultaneously settling the payments on both sides using its payment-versus-payment settlement service, linked to a real-time gross settlement system.
But with CLS Netting, the new product will rely more heavily for security and efficiency on the private distributed ledger.
Driving demand
Though today’s news marks the announcement of CLS’s first internal product to be based on a blockchain, the firm isn’t new to distributed ledgers.
CLS is a founding member of the Hyperledger initiative, along with fellow member IBM.
While IBM has been one of the larger code-contributors to the open-source project, CLS head of technology and operations, Tom Zschach, told CoinDesk his company has sought to serve a different purpose within the Hyperledger ranks.
Zschach said:
“Our role in that was not to contribute code, but to drive requirements for a financial market utility with the hope that what comes out at the other end of that is something that we can all use and people can benefit from our knowledge in running critical market infrastructure.”
Zschach said he expects most of the business for the yet-to-be launched service to come through CLS’s existing platform.
The road to blockchain
Founded in 2002, Continuous Linked Settlement helps its members ensure that all the parties in a multi-party currency exchange actually get what they want from the deal.
CLS is well positioned to bring a currency exchange product using blockchain to market. Last month, it received an average of 883,000 requests for transactions per day, for an average daily input value of $4.68tn.
To build on that, CLS announced earlier this year it would extend its business partnership with IBM to help mitigate risk on the platform. But it turns out, that partnership now extends to blockchain services as well.
IBM global business services manager Sarah Diamond said that the topic of blockchain emerged from earlier discussions between the two companies.
She explained:
“As we thought about the opportunities the industry is facing, blockchain became a key part of the discussion.”
Photo by Michael del Castillo for CoinDesk