Foreign Exchange Archives

Best FX post-trade provider: OSTTRA TriOptima

Supplying both multilateral compression and optimisation services to global FX markets, consistent high performance from TriOptima has seen the firm go from strength to strength in challenging times.
This year’s best FX post-trade provider – named at the FX Markets Asia Awards – is TriOptima. A market leader in portfolio compression, TriOptima has more than 260 clients worldwide. It is the only market player providing both multilateral compression and an optimisation service for FX markets, helping clients simplify operations and optimise resources, limit risk and reduce counterparty exposures. TriOptima continues to refine its service and make portfolio management simpler for the industry.

Phil Junod, senior director, triReduce and triBalance business management at TriOptima, says the company’s solution is highly customisable to reduce risk and exposures. “We have a holistic solution that considers the all-in cost of running a derivatives portfolio and the risk exposures in the portfolio,” he says. Two methodologies are offered – to either compress or optimise – and customers can then focus the specific event on reducing gross notional, capital and margin.

For compression, the triReduce CLS FX service provides capital optimisation and risk mitigation for the global FX market, joining its triReduce compression service to CLS’s infrastructure and market connectivity. Clients benefit from enhanced capital efficiency and leverage ratios, lower operational risks and costs, and actively managed counterparty credit risk. For optimisation, the triBalance solution is one of the most complete services on the market over the broadest range of initial margin (IM) silos across FX, rates, equities and commodities. triBalance helps clients reduce portfolio volatility, limit potential future exposure and manage counterparty risk exposures across multiple risk classes.

Junod says: “We offer this holistic solution, where you are able to address those counterparty risk exposures through different means and you’re able to target exactly what you are looking to minimise.” He explains the importance of a solution that focuses on counterparty risk: “There is a large amount of uncertainty in the market and this, together with expected regulatory changes in major jurisdictions next year, all put the spotlight on counterparty risk exposures.”

This has been a solid year of growth for TriOptima. The triReduce CLS FX compression service helped to eliminate $9.1 trillion of gross notional value from its FX forward portfolios in 2019 – a record for the service. And, despite extreme market volatility in 2020, the service has compressed $4.9 trillion since the start of the year, a 55% increase year-on-year for the service. In addition, the triBalance team is focused on the strength of its services offered when the pandemic first hit.

“Throughout March and April,” says Junod, “we were able to deliver our services consistently and without any disruptions. This is testament to our own capabilities, but also to how important it is to the market to be able to leverage services such as those we offer.”

triBalance has consistently delivered weekly cycles for several years. Over the past year, TriOptima completed the first multilateral optimisation of commodity standard initial margin model (Simm) exposures (using gold and FX), further helping its clients optimise their uncleared margin rules counterparty exposure. This move represented the first optimisation cycle across both FX and commodities exposure silos simultaneously, and worked to further grow overall IM optimisation efficiency, providing a more comprehensive tool to optimise Simm exposures.

Next year, TriOptima plans to continue its drive to improve counterparty risk offerings to the global markets – and to do this in a measured and deliberate way. As Phil notes: “Looking back, we have focused on developing very specific solutions for our customers; however, in the future, there is going to be a much greater focus on achieving synergies for our customers, so that we can address multiple issues simultaneously.”

Keeping the solution holistic and deliberate in TriOptima’s strategies will offer continued success for itself and the markets it serves.

As published in FX Markets in their November 2020 issue.

J.P. Morgan FX Prime Brokerage turns to OSTTRA to cut Designation Notice onboarding times

Challenges

FX prime brokers face cost and complexity challenges managing Designation Notices. These FX tri-party credit agreements tend to be managed on a variety of in-house and third-party platforms, resulting in complex, duplicative workflows and the potential for errors in the setup and maintenance of credit lines.

Our solution

OSTTRA Designation Notice Manager, powered by Traiana, has been adopted by J.P. Morgan FXPB as a single platform to establish, monitor, amend and terminate Designation Notices across all Executing Broker (EB) relationships, including EBs not on the OSTTRA Designation Notice Manager network.

The solution integrates seamlessly with OSTTRA CreditLink, synchronizing limits for real-time monitoring and control of trading activity.

During the project, the OSTTRA team worked alongside J.P. Morgan FXPB to onboard more than 2,000 designation notices. This has resulted in streamlined workflows with the all the EBs already on our network, as well as the ability to manage ‘offline’ EBs using the same tools and processes.

By fully adopting OSTTRA Designation Notice Manager, the team at J.P. Morgan FXPB have seen an improvement in DN onboarding times from up to 8 weeks to less than 3 weeks

“Standardising the management of our DNs on OSTTRA Designation Notice Manager has delivered real advantages. Having all DNs in a single system, managed through a common process has brought efficiencies, cut onboarding times and reduced the potential for errors.”

“The ability to automatically synch limits with OSTTRA CreditLink is also a key benefit, ensuring limits are maintained and monitored in real time. We look forward to working with OSTTRA on the next level of integration, incorporating additional FXPB agreements such as Reverse Give Ups, Double Give Ups and Switches.”

Leah Mallas, Global Head of FX Prime Brokerage and FX Clearing at J.P. Morgan

Customer benefits

Effective, streamlined, and flexible Designation Notice management and intraday risk limit monitoring.

Operational efficiency

A unified solution for managing all Designation Notices, reducing complexity and duplication

Enhanced credit risk management

A golden source of all tri-party credit lines
Integration to either in-house Credit Risk systems or OSTTRA CreditLink to monitor limits in real time

Streamlined infrastructure onboarding

Fully resilient managed infrastructure
Partnership with experienced OSTTRA team for onboarding and ongoing operational support

To learn more about Credit Management, click here or contact us at info@osttra.com.

FX Settlement’s $50bn Problem: Why Regulators Are Embracing DLT While Firms Hesitate

A notable paradox has emerged where traditionally cautious bodies, such as the central banks of Australia, Singapore, and Great Britain, and the U.S. government, are actively embracing distributed ledger technology (DLT)-based innovation, appearing less risk-averse than the financial firms who are being held back by “collective uncertainty”. The critical question facing the industry is not what the future of FX settlement looks like, but how to get there without costly and high-risk technology overhauls. The solution is integration, not replacement. This article discusses how the latest regulatory developments around the globe accelerate the post-trade innovation roadmap and how to lower the barriers to adoption while ensuring operational continuity.

As I read the news that the U.S. government is set to publish economic data on blockchain, I wondered if we have arrived at a turning point in financial markets: Could this be the end of uncertainty about what the next iteration of Wall Street will look like?

It’s a matter I’ve given lots of thought to this summer, especially after a number of officials and studies highlighted the scale of the problem that comes with continuing to use archaic technology – just FX settlement, the area I work in, is a $50bn annual problem, driven by a preference for fixing the old rather than switching to a new way of operating – one that’s already proven and available.

The U.S. government embracing distributed-ledger technology could finally shift the inertia when it comes to settling FX trades and spur a move towards adopting a more efficient, cheaper and faster solution. Now, the market just has to have conviction and switch it on at scale.

The $50bn legacy problem

Issues around FX settlement are clear from the study published by ISDA and Ant International, as part of a working group for the Monetary Authority of Singapore’s Project Guardian. The tension between the once-daily FX settlement processes and the increasingly 24/7 nature of markets has also been highlighted in a speech by Sasha Mills, executive director for financial market infrastructure at the Bank of England.

Delays, costly inefficiencies and overly-complex, patched up systems persist despite better alternatives being available.

Mills attributed this inertia to collective uncertainty about where markets are going from a tech perspective. The problem for financial markets is that harmonising post-trade processes is hard and new solutions only scale if the majority of participants adopt them.

This is why change has been so slow to materialise, with the BoE’s Mills noting that the central bank’s survey about the future of post-trade services revealed that 75% of IT spend went on patching up “potholes” in existing infrastructure rather than building for a future that is already here.

This diagnosis of the industry’s inertia is precisely why collaboration is now the most critical path forward.

Join U.S. GENIUS on the journey to CLARITY – from retail ripple to wholesale revolution

July 2025 marked a major milestone for financial markets participants and infrastructure providers. By approving the GENIUS Act, the U.S. authorities provided banks with a direct regulatory path to issue stablecoins. This has also prompted major retail firms to explore issuing their own corporate coins, though the Act creates a more restrictive, high-bar approval process for non-financial companies seeking to do the same.

This paradigm shift in policy will have far reaching ramifications for retail consumers, intermediaries and infrastructure providers in the financial markets. It paves the way for mass adoption of new infrastructure which will drive real benefits for consumers and removes the constraints of legacy payments infrastructure. A GENIUS secondary benefit is that it will create new demand for USD and US Treasuries – as StableCoin issuers must warehouse ‘High Quality Liquid Assets’ to back their tokens. While the trend of ‘de-dollarisation’ is a frequent topic of debate, particularly regarding central bank reserves, this move is set to act as a powerful counterweight, reinforcing the dollar’s central role in the emerging digital asset ecosystem.

The CLARITY Act, largely focused on Crypto, digital assets and tokenised market microstructures, still needs to be approved by the Senate Banking Committee. Once approved, I can see it providing the impetus for technology transformation in financial markets infrastructure.

Some firms will argue that the impact is largely on their retail banking customers, so why make changes to the core wholesale markets post-trade infrastructure? Others will take this opportunity to build for the future. They will mobilise and look to uplift their legacy infrastructure, workflows, and operating models, while creating new StableCoin, tokenised assets and services to reap the benefits of programmable money – enabling efficient 24/7 mobility of cash and collateral for their customers.

Collaboration is central to a faster final settlement future

A key risk in financial innovation is the emergence of so-called ‘walled gardens’ that fragment the systems, trap liquidity, and undermine efficiency. This is why collaboration and interoperability is now the most critical path forward. While the case for new technology is clear, a “rip out and replace” approach presents significant operational risk and cost for firms heavily invested in legacy infrastructure. OSTTRA’s strategy directly addresses this challenge by focusing on integration, not replacement. We act as an essential bridge, using OSTTRA’s global established networks to connect clients to new, DLT-enabled workflows. This means firms can plug into the network to access services from innovators like Baton Systems, Fnality and Partior, effectively layering their new capabilities on top of existing infrastructure.

By enabling the industry to perform both legacy and new processes simultaneously through established connectivity, we lower the barrier to adoption and ensure the market can evolve as a cohesive, mixed ecosystem rather than being fractured by technological divides. Specifically, by integrating Fnality’s system with OSTTRA’s on-demand FX PvP settlement orchestration service, we are creating a network that moves FX settlement from a slow, sequential, and uncertain process into an era of digital collaboration where settlement is simultaneous or near-instant and not tied to commercial bank money.

Similarly, by connecting our FX settlement services with Partior’s unified multi-currency network, we are actively building bridges between fiat and tokenised commercial bank money to give clients true interoperability and choice, rather than trapping them in the proverbial walled garden.

“By enabling the industry to perform both legacy and new processes simultaneously through established connectivity, we lower the barrier to adoption and ensure the market can evolve as a cohesive, mixed ecosystem rather than being fractured by technological divides.”

– Basu Choudhury, OSTTRA

Conviction is building

For market participants who are still on the fence about what the future of FX settlement looks like, I’ll point to central banks around the world as they increasingly work towards a market structure where DLT plays an integral role.

As a case in point, Project Meridian FX (MFX) is a joint initiative between the Bank for International Settlements (BIS) and Bank of England, Bank of France, Bank of Italy, Deutsche Bundesbank and the European Central Bank. It explores how operators of wholesale payment infrastructures can enable interoperability with new technologies, such as DLT, with a focus on foreign exchange (FX) transactions.

Project MFX builds on the concept of synchronisation to demonstrate its technical feasibility in a multicurrency FX transaction. Through the experiments conducted during the project, a synchronisation operator enabled atomically-settled FX transactions between different RTGS systems in various jurisdictions, as well as between an RTGS system and a DLT platform.

In Australia, the RBA announced the next phase of Project Acacia in July, selecting 24 use cases to test alternative ways of settlement using digital forms of money to develop the foundations for tokenised markets.

This will take place across a range of asset classes, including fixed income, private markets, trade receivables and carbon credits, while proposed settlement assets for the use cases include stablecoins, bank deposit tokens, and pilot wholesale central bank digital currency (CBDC), as well as new ways of using banks’ existing exchange settlement accounts at the RBA.

The initiative mirrors efforts in Singapore, where the financial regulator outlined late last year its vision for commercialising tokenised assets and rails. Private sector initiatives are also gaining traction. When major economic powers like the United States of America begin putting foundational data ‘on-chain’, the direction of travel is undeniable, and as both central banks and private-sector companies take steps to invest into new post-trade systems, the risks are changing from getting investments into the future wrong to not making any.

Scenarios for FX Settlement: Experimenting at the Edges vs Wholesale Adoption of DLT and Tokenisation

Best Case: Tokenised commercial bank money and ledger-based settlement orchestrations deliver real-time, PvP settlement at scale. Our collaborations (powered by Baton) with Partior and Fnality demonstrate how ledger-based innovation can expand liquidity choice and reduce counterparty risk.

Middle Ground: Multiple competing digital settlement networks emerge, creating pockets of efficiency but also new interoperability headaches.

Worst Case: Regulatory divergence or lack of adoption leaves banks uncomfortably straddling legacy and digital infrastructures—duplicating costs without reaping the promised savings.

In short, infrastructure has been built. The point where it makes more sense to build new rather than patch the old is already here. Now is the time for the industry to come together, embrace these live networks, and unlock the immense value in efficiency and risk reduction. The future is already waiting – there’s no “big bang” moment left to wait for.

Fnality Joins OSTTRA and Baton Systems’ FX PvP Network to Expand Settlement Choice and Bolster Liquidity Efficiencies

OSTTRA’s FX PvP settlement orchestration service grows as Fnality collaborates with Baton’s distributed ledger technology (DLT) and becomes the first digital settlement system to be added to the network.

London, 22 May 2025 – OSTTRA and Baton Systems today announced a strategic collaboration with Fnality following the successful completion of a proof-of-concept integrating Fnality’s system with their on-demand FX payment-versus-payment (PvP) settlement orchestration service. 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. This will allow institutions to efficiently manage both liquidity and settlement risk.

Over the past year, OSTTRA and Baton have been actively engaging with a group of leading market participants, including 12 major 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.

This initiative directly responds to market demand to expand PvP settlement orchestration to additional settlement venues. As part of the proof-of-concept, participants used 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 expands settlement options, offers flexibility in selecting Fnality for one or both of the settlement legs and enables around-the-clock settlement orchestration beyond traditional market hours, enabling participants to enhance overall liquidity efficiency. 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.

Participants also benefit from continuous, automated payment netting and splitting, seamlessly integrated with on-demand, instantaneous PvP settlement orchestration, delivered to each participant’s selected settlement venue(s). This allows firms to better manage the overall funding burden and liquidity pressures associated with large volumes and large-value settlements, creating additional settlement capacity to support business growth.

Michelle Neal, CEO of Fnality said, “Joining the OSTTRA and Baton PvP network marks a significant milestone in our mission to make institutional-grade digital settlement a practical reality. 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.”

“At OSTTRA, we are committed to continually evolving post-trade efficiency for our clients,” states John Stewart, co-CEO. 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 in this journey. This strategic enhancement gives users more robust tools to manage risk and optimise their settlement orchestration processes in today’s dynamic global markets.”

Arjun Jayaram, Founder and CEO of Baton Systems, commented: “We’re delighted to partner with Fnality to expand the range of settlement options within the PvP service to address bank liquidity optimisation and risk management requirements. 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.

Ultimately, 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.”

This proof-of-concept leveraged the Sterling Fnality Wholesale Payment System Test Environment in GBP. This has demonstrated that the Sterling Fnality Payment System can become a settlement leg for the OSTTRA FX PvP settlement orchestration service. No other currency is currently available in the Fnality ecosystem.

About Baton Systems

Baton Systems is a leading global fintech that has facilitated the settlement of over $17 trillion and processed more than 140 million transactions. Each day, the platform handles $20-30 billion in asset settlements across both cash and securities for some of the world’s most prominent financial institutions. Its cloud-based, multi-asset platforms connect and empower networks in post-trade, payments and settlements.

Founded in 2016 by Silicon Valley technologists and capital market specialists, Baton Systems is transforming the entire front-to-back post-trade process by introducing interoperable and connected digital market infrastructures designed to increase speed, visibility and control from trade matching through to settlement.

Find out more at www.batonsystems.com

About OSTTRA

The home of industry-shaping businesses MarkitServ, Traiana, TriOptima and Reset, OSTTRA (osttra.com) brings the expertise, processes and networks together to solve the post-trade challenges of the global financial markets. OSTTRA strengthens the post-trade infrastructure and ecosystem with robust and progressive end-to-end post-trade solutions and unrivalled connectivity.

Baton & OSTTRA Media Contact:

Tim Focas

Aspectus Group

tim.focas@aspectusgroup.com

About Fnality

Fnality is developing a series of regulated DLT-based wholesale payment systems. Each system, known as a Fnality Payment System (FnPS), is supervised by its respective central bank.

Within a FnPS, participants utilize a digital representation of funds held at central banks for instant wholesale payments. The launch of FnPSs in key jurisdictions will enable many benefits such as real-time cross-currency payments and the secure atomic settlement of any delivery versus payment transactions around the clock. The credit quality of the central bank funds underpinning Fnality Payment Systems provides the missing ingredient for novel digital asset markets: institutional-grade digital cash.

In December 2023, the Sterling FnPS, previously recognized by HM Treasury as a systemically important payment system, commenced controlled live payments. Joining a handful of other regulated payment systems in the UK, it became the world’s first regulated DLT-based wholesale payment system, settling with digital representation of funds held at the central bank. From December 2024, the £FnPS has been granted settlement finality designation.

Fnality’s shareholders comprise: Banco Santander, BNY Mellon, Barclays, BNP Paribas, CIBC, Commerzbank, DTCC, Euroclear, Goldman Sachs, ING, KBC Group, Lloyds Banking Group, Mizuho Financial Group, MUFG Bank, Nasdaq Ventures, Nomura, Sumitomo Mitsui Banking Corporation, State Street Corporation, UBS and WisdomTree.

For more information, please visit fnality.com

Fnality Media Contact:

The PHA Group – fnality@thephagroup.com

OSTTRA, Baton and Partior Expand FX Settlement Ecosystem with Tokenised Commercial Bank Funds and 24/7 Access

OSTTRA’s FX PvP settlement orchestration service grows as Partior Integrates with Baton’s institutional-grade distributed ledger technology (DLT), providing network participants opportunities to use tokenised commercial bank deposits for atomic PvP settlement and liquidity optimisation

London, 17 June 2025 – OSTTRA and Baton Systems today announced that Partior has connected to their on-demand FX payment-versus-payment (PvP) settlement service. This integration expands participants’ options for settling FX transactions with PvP protection to include using tokenised commercial bank facilities. This expanded choice will enable financial institutions to further optimise liquidity management and improve capital efficiency as the adoption of tokenised funds continues to scale.

The collaboration with Partior further extends the network’s capabilities, delivering access to a live ecosystem with major institutional banks offering settlement in a growing range of currencies, including USD, EUR and SGD tokenised commercial bank money. It also allows institutions to execute and manage post-trade FX processes and settle tokenised commercial bank funds on demand – 24 hours a day, 7 days a week.

With Partior joining the network, participants can continue to benefit from the existing automated matching, netting and settlement orchestration which delivers programmable atomic PvP and can now elect to settle FX transactions using either fiat or tokenised commercial bank money or an asset with the credit characteristics of central bank money.

Furthermore, the network’s interoperable design can orchestrate settlement combinations, for example, where one currency leg involves traditional fiat and the other leg tokenised money. This flexibility allows network participants to align tokenised settlements with their institution’s liquidity demands across global markets, while minimising pre-funding requirements when dealing with currencies in different time zones.

Powered by Baton’s trusted DLT technology, which has facilitated over $13 trillion in FX settlements to date, the enhanced PvP network delivers the robust infrastructure, speed, and end-to-end transparency institutions need to scale settlements in line with the continued growth in tokenised assets.

Humphrey Valenbreder, CEO, Partior said: “As the industry moves beyond experimentation toward real-world adoption of digital assets, the ability to settle FX trades with tokenised commercial bank money efficiently is a great step forward. It’s not just about speed or 24/7 access – it’s about setting the stage for a more connected, resilient, and accessible financial system. With real-time, PvP settlement across both fiat and tokenised assets, this service gives institutions a smarter way to manage liquidity, reduce risk, and unlocks new opportunities to optimise capital across global markets.”

John Stewart, Co-CEO OSTTRA added: “Our partnership with Baton last year was an exciting milestone. We set out to combine the global OSTTRA network with Baton’s game-changing technology to enable the widespread adoption of FX PvP, extending the critical benefits of liquidity optimisation and settlement risk mitigation to a broader range of currency pairs and market participants. With tokenised commercial bank assets rapidly emerging as a transformative force, the integration and partnership with Partior is a significant next step on our journey, acting on the feedback from our early adopters to provide more flexibility in settlement options.”

Arjun Jayaram, Founder and CEO, Baton Systems commented: “As the digital settlement landscape continues to rapidly evolve, we’re witnessing a major shift in how markets operate. The transition from fiat to digital assets is ushering in an era where banks can leverage multiple settlement venues to optimise liquidity and ensure safe settlement. With Partior now integrated with our institutional-grade DLT, we provide network participants with even greater choice in the account structures they can use to orchestrate settlement across venues for an increasingly diverse range of assets.”

Notes for Editors
This proof-of-concept leveraged the Partior Digital Cash Settlement Test Network. This has demonstrated that the Partior Digital Cash Settlement Network can become a settlement venue for the OSTTRA FX PvP settlement orchestration service.

About Baton Systems

Find out more at www.batonsystems.com

About Partior

Founded in 2021 and backed by DBS Bank, J.P. Morgan, Standard Chartered, Temasek, and Peak XV, together with Deutsche Bank, Partior enables real-time, atomic clearing and settlement, providing instant liquidity and transparency, offering enhanced security, and overcoming challenges commonly associated with sequential processing in legacy payment systems. The platform currently supports USD, EUR, and SGD, with plans to integrate additional currencies including AED, AUD, BRL, CAD, CNH, GBP, JPY, MYR, QAR, and SAR.

For more information, please visit partior.com

From Rusty Bikes to Formula One: Upgrading Cash Flow Management in Derivatives Trading

Traditionally, the back office has lagged behind the front office in technological advancements, hindering efficiency and accuracy in cash flow management. It’s time to shift gears and unleash the full potential of automation, regardless of asset class or payment type.

In December 2024, Philippe Lintern, the head of the Bank of England’s FX division, compared front office staff using the most advanced technology to Formula One teams, while noting that peers in the back office were left struggling to match the pace on their “rusty old bicycles.” An area where this rings particularly true is the $667 trillion global derivatives space, where cash flow management remains heavily manual, relying on humans, emails and even fax machines, despite the fast-paced world of trading pushing ever increasing volumes through this strained back office infrastructure.

It doesn’t have to be like this. As the dust settles from the all-consuming rush to T+1 settlement, resources can be re-focused on tackling some of the stubborn pockets of manual process that persist in the back office – and with the twin goals of improving both operational and capital efficiency, cash flow management is emerging as a priority.

“Last year we started to see a lot more focus on transparency and automation in post-trade interactions between counterparties, including those processes where custodians are involved, such as cash flow payments,” said Tom Woolfenden, Director, Product Design, OSTTRA. “However, so much manual coordination remains to agree and settle these cash flows.” This has been highlighted recently by the Financial Markets Standards Board in their final standard for sharing of Settlement Instructions, and updated guidance also issued in the Global Foreign Exchange Committee’s revised FX Global Code, such as Principle 44, which states that “Market Participants are encouraged to implement straight-through automatic transmission of trade data from their front office systems to their operations systems”, by means of secure interfaces where the transmitted trade data cannot be changed or deleted during transmission.

Cash flow management itself isn’t a complicated concept: At its core, it’s about making regular payments to the other parties involved in your trades, based on the underlying contract terms and up-to-date valuations.

However, things get incredibly complex when you consider the scale of the market. A large financial institution might handle hundreds of thousands of these trades and their associated cash flows every month. This volume alone makes it difficult to track who owes what to whom. The problem is compounded by the fact that different participants use different data standards, calculation methods, market data sources, and messaging formats. This lack of standardisation can make it extremely challenging to even figure out which specific trade back-office staff are discussing in their emails, or which trade is causing a discrepancy.

“An absolute worst-case scenario is that you’re expecting to receive a cash flow from an open trade, and you have your designs on how to use that money, but your counterparty doesn’t even have an idea that there is an obligation to you”, Woolfenden adds.

Interest rate swaps, equity swaps and portfolio swaps are prime examples of the products where manual cash flow management leads to errors and operational inefficiencies. Take equity swaps for example: Cash flow management for these contracts involves the ongoing payments of the swap for the duration of the trade, as well as the underlying dividends and accruals, all of which need to be calculated, agreed on and then settled, which is where the uncertainty and misalignment comes in.

“We often see market participants taking agreed cash flow information offline, emailing, or even faxing it to their custodian, creating an inefficient communications chain to complete the payment and settlement process,” Woolfenden said.

As settlement times are expected to continue to shorten globally, untangling the confusion will quickly become even more important. Cash flow inefficiencies also prevent liquidity optimisation, or the ability of the front office to deploy cash to generate profits – because the money is stuck in a back-office limbo until the disagreement is resolved.

The most efficient way to resolve this conundrum is bringing transparency into the process for all sides and linking agreed trades with subsequent cash flows so that calculations can be made using consistent economics. OSTTRA Cash Flow Management is an established platform that helps streamline the cash-flow-processing challenge with a standard workflow and matching engine. With legal confirmations for many bilateral OTC trades readily available on OSTTRA MarkitWire and connected to the OSTTRA triResolve reconciliation engine, participants can have complete confidence that they share a common view of a transaction with their counterparties. An automated system that matches cash flows, as well as linking the underlying trades associated with them, removes the need to spend time figuring out who owes what and why: OSTTRA Cash Flow Management also notifies participants if they’re misaligned. It can also bilaterally net matched cash flows into an agreed, reduced number of payments whilst respecting settlement instructions.

“At OSTTRA, we are uniquely positioned to eliminate friction and inaccuracies in derivatives cash flows, thanks to our position at the centre of post-trade, from trade confirmation and processing through to portfolio reconciliation and collateral management, and all the opportunities for improving data standardisation that this brings. The end result is that we can seamlessly automate the entire process, including sending SWIFT settlement messages on behalf of our clients. The settling bank, typically the custodian, can receive an instruction to do the settlement just one minute after the cash flow is matched, removing the all too common merry-go-round of email, phone and fax communication and bringing greater transparency on a real-time basis,” Woolfenden said.

Once the whole lifecycle is automated, conducted in real-time and in a way that’s transparent to parties, calculations can be done on the same basis, payments can be netted and settlement becomes a matter of a simple instruction to the custodian – as easy as riding a bike! To learn more about OSTTRA for Cash Flow Management, please visit osttra.com/cashflow

FX Global Code Revisions Put PvP Settlement in the Spotlight

The revisions to the FX Global Code underscore a growing need to reduce settlement risk in an increasingly complex market. In this video, Basu Choudhury, Head of Partnerships and Strategic Initiatives at OSTTRA, examines the evolving expectations for firms under the latest revisions. Find out how OSTTRA, in partnership with Baton Systems, helps firms navigate these changes through our PvP Settlement Orchestration service, reducing settlement risk and optimising liquidity.

To learn more about our on-demand PvP Settlement Orchestration service, visit osttra.com/pvp or contact us.

OSTTRA and Baton Systems partner to launch FX PvP service, mitigating settlement risk in FX markets

OSTTRA will operate an on-demand payment-versus-payment (PvP) service, powered by Baton’s proven distributed ledger technology, designed to mitigate settlement risk in the US$2.2 trillion of daily FX turnover settled outside CLS. The service will be open to FX market participants globally – including market maker banks, investment managers, and large corporates. Initial participants include HSBC and Wells Fargo.

LONDON, 06 March 2024 – Global post-trade solutions provider, OSTTRA, announced today the launch of an FX PvP settlement orchestration service designed to mitigate bilateral settlement risk between participants, while optimising intraday funding, liquidity, and credit risk.

The launch of the new OSTTRA service comes after the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) last year advocated an increase in the adoption of PvP in FX transactions to reduce FX settlement risk (or “Herstatt risk”). As of April 2022, the Bank for International Settlements (BIS) said that there could be settlement failures in US$2.2 trillion daily deliverable FX turnover, because it either sat outside PvP platforms or as “on-us without loss protection” trades.

The PvP service will be delivered on proven distributed ledger technology (DLT) from Baton Systems (Baton) and marks a significant milestone in increasing market wide access to PvP, helping to address FX settlement risk concerns. The focus will be on settling flows not currently settled on CLS, including non-CLS eligible transactions such as offshore Chinese renminbi, which has almost doubled in the percentage share of global FX trading volumes from 2019 to 2022 according to BIS. Bank and non-bank market participants will also have much greater flexibility to settle FX transactions intraday, without being tied to the CLS cut-off window.

The launch represents the first step in a broader OSTTRA strategy to improve the market structure of OTC markets. It is intended that the service will evolve to include settle-to-market functionality, significantly reducing derivative counterparty exposures, therefore reducing the regulatory capital required under SA-CCR (Standardised Approach to Counterparty Credit Risk).

The decision to partner with Baton follows an extensive market review and due diligence process conducted by OSTTRA. Baton’s solution already orchestrates the settlement of billions of dollars every day, with settlements to date exceeding US$8.1 trillion in value.

Under the terms of the partnership, OSTTRA will take on the operation of Baton’s award-winning Core-FX service, including administration of the rulebook, which governs the end-to-end process and encompasses the secure orchestration of funds, and which provides the framework for achieving final settlement. HSBC and Wells Fargo, early adopters of Core-FX as part of the HSBC FX Everywhere initiative, will join the OSTTRA operated service during the first half of 2024.

Mark Williamson, Global Head of FX & Commodities Partnerships & Propositions at HSBC, commented: “Since 2018, HSBC FX Everywhere has used Baton’s Core FX technology to settle 16 million FX trades across 13 different currencies totalling US$8.1 trillion. Using OSTTRA as a post-trade platform, the wider market will now be able to use the same technology to reduce their FX settlement risk through PvP settlement and compression, as well as optimising their cash flows. Overall, this will significantly mitigate Herstatt risk in the market.”

Chris Leaver, Chief Strategy and Marketing Officer at OSTTRA, added: “There’s huge scope for further post-trade efficiencies across OTC asset classes: this new service represents an important milestone in the evolution of our FX network, extending existing workflows to reduce settlement risk for thousands of OSTTRA clients. We’re excited to have chosen Baton as a partner in this first step of our journey – their proven technology leads the market in real-world, production DLT solutions for institutional capital markets”.

Arjun Jayaram, Founder and CEO of Baton Systems, further commented: “We’re excited to be collaborating with OSTTRA. OSTTRA is a leading player in the post-trade arena with extensive market reach. Through this strategic partnership, we will jointly accelerate and globally scale access to PvP settlement whilst enabling the Baton team to continue innovating and deploying operationally resilient solutions that deliver modern, cloud-based interoperable technology stacks that make our markets more inclusive, safer, and more efficient.”

ABOUT BATON SYSTEMS
Baton Systems is the global fintech company transforming the entire front-to-back post-trade process, introducing interoperable and connected digital market infrastructures from trade matching through to settlement. Empowering financial institutions to take control with automated and configurable rules-based workflows, access to real-time information, and on-demand settlement, Baton’s DLT-based solutions are redefining what post-trade processing should look like: fully connected, friction-free, flexible, and transparent.
Founded in 2016 by Silicon Valley technologists and capital market specialists, Baton’s solutions are now being used by several of the world’s largest financial institutions to facilitate the movement of billions of dollars of cash and securities on a daily basis.

Find more information on how OSTTRA is orchestrating PvP Settlement at www.osttra.com/pvp.

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