Fnality Joins Osttra, Baton FX PvP Network

After what the firms describe as a successful proof-of-concept, DLT-based payments system Fnality has joined the FX payment-versus-payment (PvP) settlement network created by Baton Systems and Osttra.

The proof-of-concept leveraged the Sterling Fnality Wholesale Payment System Test Environment in GBP, which the firms say demonstrated that the Sterling Fnality Payment System – the only currency currently supported by Fnality – can become a settlement leg for the Osttra FX PvP settlement orchestration service. They add that in addition to the current ledger-supported intraday and on-demand netting and settlement, Fnality expands available settlement options using an asset with the credit characteristics of central bank money, that is recorded on a DLT ledger, to settle around the clock, thus allowing institutions to manage both liquidity and settlement risk.

Global regulators continue to push for increased levels of PvP settlement in FX markets, something that was previously limited to CLS currencies only. In response, Osttra and Baton state they have been “actively engaging” a group of market participants, including 12 un-named banks, “to guide development plans and ensure the service enables more FX market participants to benefit from the assurance and liquidity management benefits of on-demand, atomic PvP settlement-functionality which can prove critical in volatile times”.

The Fnality project created an asset with the credit characteristics of central bank money, recorded on a DLT ledger, to offer PvP settlement services alongside commercial bank money. This means that users of the Osttra network can select Fnality for one or both of the settlement legs, thus enabling around-the-clock settlement orchestration beyond traditional market hours.

The firms stress that this update is part of a series of enhancements that will see the service mature over the coming months to offer increased flexibility and further options for how and where settlements occur.

“Joining the Osttra and Baton PvP network marks a significant milestone in our mission to make institutional-grade digital settlement a practical reality,” says Michelle Neal, CEO of Fnality. “This integration is the first step in bringing true PvP capabilities to our customers, enabling them to settle FX transactions using a digital record of funds held at the central bank, and introducing greater choice and flexibility into the settlement landscape.

“Through Fnality, this collaboration lays important groundwork for more resilient and efficient FX markets by reducing risk, enhancing liquidity, and supporting atomic, instantaneous settlement at any time of day,” she adds.

John Stewart, co-CEO, of Osttra, says, “Fnality’s introduction of DLT settlements using an asset with the credit characteristics of central bank money, coupled with extended hours, represents a key milestone. This strategic enhancement gives users more robust tools to manage risk and optimise their settlement orchestration processes in today’s dynamic global markets.”

Although netting remains a vitally important part of the settlement process – high frequency trading firms do not want to settle upwards of 30,000 trades every day – there is a growing interest in the possibilities of quicker settlement, especially in the corporate world. Banks can also better manage their funding burden, as well as the liquidity pressures associated with large volumes and large-value settlements, to help create additional settlement capacity to support business growth.

“[This collaboration] expands the range of settlement options within the PvP service to address bank liquidity optimisation and risk management requirements,” concludes Arjun Jayaram, founder and CEO of Baton Systems. “With these enhancements, settlement participants can select the type of asset or system they wish to settle in and settle on a 24×7 basis whilst benefiting from proven capabilities to net and settle large volumes of transactions on a near real-time basis. Our goal is to continue innovating and collaborating so we can support firms in settling transactions where they choose, over both digital and traditional payment rails.”