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The Irish fintech startup FXCH (the FX Clearing House) announced it has successfully accepted and novated its first institutional forex spot transactions using a distributed ledger system (DLT) for settlement.
The DLT system, also known as blockchain, is still mainly used for recording and storing transactions with bitcoin, but an increasing number of financial institutions and governments are seeking other applications.
From now on, FXCH will be using the DLT for clearing and settling trades transacted on any institutional forex platform by its clients. According to the company, the use of blockchain offers not only lower price, but also full transparency to the settlement process and gives trust in the integrity of the clearing system.
“We embraced the Blockchain technology for its strongest but most overlooked property: the trust machine,” said Franck Mikulecz, founder of FXCH. “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”.
According to FXCH the current system for settling trades on the foreign exchange, which is considered the largest capital market by a daily turnover of USD 5.3 trillion, as estimated by the Bank for International Settlements, is archaic, expensive, cumbersome and ripe for disruptive innovation. Furthermore, the risk of non-delivery is barring non-bank financial institutions from operating autonomously as clearing facilities and usually the settling is ultimately done by large banks.
“In order for a technology to find its place, it needs to be understood by a majority in an industry,” noted Martin Dyring-Andersen, FXCH’s CTO. “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.”
FXCH was founded in 2015 and is a member-based financial utility for Spot-FX clearing leveraging blockchain technology. It was set up by a team of FX professionals with extensive experience in the institutional FX markets. The company has an office in Dublin, Ireland and Sydney, Australia.
FXCH is among the many financial institutions seeking applications for blockchain besides recording transactions with cryptocurrencies, but is by far the first one to try and find a practical application for the technology in forex trading.
On Monday it became clear that the Bank of Russia has set up a consortium to test blockchain in transferring messages among banks. The Bank of Canada, for example, is already testing intrabank payments via blockchain. The private banks are not staying behind and are also trying out the DLT. Last week IBM and the French bank Credit Mutuel Arkeaannounced they have successfully completed a project to improve the bank’s ability to verify customer identity and Santander UK is testing real blockchain payments.