A couple of blockchain firms are developing a new settlement model for foreign exchange (FX) swaps that envisions lower risk, cost savings and enhanced revenue opportunities for the big banks that dominate the FX market.
The firms — Finteum and Fnality International — announced that they’re working together on technology to enable intraday FX swaps trades to settle using a digital asset, known as the utility settlement coin (USC), which is based on Ethereum.
“The collaboration will… allow for instant settlement, in effect creating a new trade settlement business model,” the firms said. “This version of settlement can occur 24/7, meaning less counterparty risk and fewer intermediaries.”
“Large banks could each save tens of millions by creating efficiencies in their intraday liquidity,” said Brian Nolan, co-founder of Finteum. “Instant gross settlement doesn’t work for every use case, but is important for the initial payments in intraday FX.”
Olaf Ransome, chief commercial officer at Fnality, said, “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. 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”.
Fnality is backed by a collection of 14 major banks, including CIBC, as well as Nasdaq. Finteum is a London-based start-up.