BME Launches PvP FX Settlement Platform

Spanish stock market operator Bolsa y Mercados Españoles (BME) has launched a new system to settle FX Transactions in a payment-versus-payment (PvP) mode rather than by the existing bilateral settlement.

The firms says the “innovative” platform (CLS has, of course, been doing this for more than 20 years) is “designed to improve efficiency and reduce the risks associated with foreign exchange transactions”. The settlement service has been integrated into BME’s FX trading platform, to offer, the firm claims, “the only platform with FX trading and settlement integrated”.

It will be offered to those firms settling bilaterally in the European Union and Switzerland thanks to approval from the Spain’s central bank Banco de España.

BME, which is owned by Six Group, says that in Spain alone, EUR 18 billion-worth of FX trades are settled bilaterally and that the launch follows demand “from some banks and financial institutions as a solution to the inherent problems of bilateral currency settlement, including the rapid consumption of credit lines, which reduces the potential business between entities”.

Citing one of the main benefits of PvP, BME says the service will “drastically reduce” the reliance on credit lines, increasing the volume and number of possible counterparties. The new service is also integrated into Swift and allows for the netting of transactions between counterparties.

“We are convinced that our neutral position as an operator of financial markets and the robustness of our technical infrastructure will allow us to offer a high-quality and highly available service to participants,” says José Manuel Ortiz, head of securities services at BME. “The implementation of the FXS service represents an important step towards greater efficiency and security in foreign exchange transactions in Europe.”

While at face value this seems a replication of the CLS service, the likelihood is that it will target those firms that are outside the reach of CLS. While the euro (and Swiss franc) is very much a big part of CLS, smaller players, transacting smaller, less regular volumes, find the economics of using the biggest FX settlement system in the world prohibitive.

This launch will likely be watched elsewhere, and if successful, could see a “second tier” of PvP settlement providers spring up around the globe as the market reacts to the authorities’ desire for as much PvP settlement in FX markets as possible.