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Baton Systems’ technology powers the world’s first interbank riskless settlement

By Edlyn Cardoza

December 14, 2021

  • Baton Rulebook
  • Baton Systems
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PvP, CLS, Interbank, Baton Systems, Core-FX, USAThe world’s first interbank Payment vs Payment (PvP) settlement outside of CLS has been completed using Baton Systems’ Core-FX solution, built on Baton’s proprietary distributed ledger technology (DLT) and governed by the Baton Rulebook.

Standing at the threshold of a new era in FX settlements, two of the world’s largest financial institutions are now using the platform to collaboratively settle FX trades bilaterally on demand using real currencies in real accounts, in less than three minutes, on a PvP basis with legal settlement finality. The solution enables the firms to net in an efficient manner, choose what time to settle and in which currencies, all on a PvP basis – reducing settlement risks and FX processing costs.

This historic move marks the inception of a profound change in FX settlements. All market participants now have the opportunity to radically reduce their settlement exposure and associated risks outside of the CLS framework. All currencies, including emerging market currencies, which are ineligible for PvP settlement in CLS, can now be securely settled using distributed ledger technology that provides extensive flexibility and complete transparency.

Aligned with an enhanced regulatory focus on expanding and extending riskless settlement more broadly across the market, Baton’s innovative PvP solution empowers market participants to take direct control of their settlement cycles, settle multiple times a day, and streamline workflows, resulting in significant improvements to their liquidity, funding, risk and credit management.

The availability of this transformative technology provides a long overdue alternative to a market previously hamstrung by restrictive batch-based processes and limited PvP access at both a participant and currency level.

Arjun Jayaram, CEO and Founder of Baton Systems commented: “This development is hugely significant for the entire FX market, as it offers firms the opportunity to really address settlement risk – arguably the most critical control issue impacting post-trade today. Today’s announcement demonstrates the tremendous potential this technology presents to FX market participants globally to improve their risk management, intraday liquidity controls and funding profiles. Using proven technology that is readily available today, banks can now take control and completely revolutionise their entire post-trade process from trade-capture through to settlement.”

As part of the implementation both banks have agreed to the Baton Rulebook, a framework designed to provide legal certainty around settlement finality. Baton is engaging with other leading FX trading businesses, as well as regulators globally, to expand market access to fast and riskless PvP settlement protection to a wider universe of participants.

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