Post-trade solutions provider OSTTRA has launched an FX payment-versus-payment (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 follows the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) advocated an increase in the adoption of PvP in FX transactions to reduce FX settlement risk.
The new PvP service will be delivered on DLT from Baton Systems and will help increase market wide access to PvP, addressing FX settlement risk concerns.
Flows not currently settled on CLS, including non-CLS eligible transactions such as offshore Chinese renminbi, will be the main focus of the service.
Bank and non-bank market participants will also have improved flexibility to settle FX transactions intraday, without being tied to the CLS cut-off window.
OSTTRA stated that it is intended for the service to 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).
“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,” said Chris Leaver, chief strategy and marketing officer at OSTTRA.
As part of the terms of the partnership, OSTTRA will take on the operation of Baton’s Core-FX service, including administration of the rulebook, which governs the end-to-end process and the secure orchestration of funds, alongside providing the framework for achieving final settlement.
Early adopters of Core-FX, HSBC and Wells Fargo, will join the OSTTRA operated serving during the first half of this year.
“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,” said Arjun Jayaram, founder and chief executive of Baton Systems.