Goldman Sachs And Morgan Stanley Are The First Banks To Use IBM’s CLSNet

The bank-owned currency trading utility CLS, which now has a partnership with the tech giant IBM, has finally made its joint effort with IBM, CLSNet, go live after more than two whole years of development. Now, companies like Goldman Sachs and Morgan Stanley are starting to use IBM’s CLSNet along with other companies.

These other companies include six more participants coming from North America, Europe and Asia. They include the Hong Kong-based Bank of China and more are still yet to come.

Ram Komarraju, acting as the managing director of technology for the new company, has talked to the crypto media and informed that the first transactions were already made using this new system and that the company has sent a netting report to the counterparts.

While the launch happened only this month, the company has already been working with the beta version of the software for quite some time now. Final testing happened in July.

As Goldman Sachs and Morgan Stanley both have already signaled that they are interested in the blockchain technology, there is not a lot of surprise involved in the process.

CLSNet is the third big blockchain initiative created by IBM in 2018. The first one is IBM Food Trust, which is possibly the largest product and it was launched in October and there is We.trade, a trade finance platform. Because of this, the company has carved out its place as one of the most interesting blockchain companies in the year.

Marie Wieck, general manager at IBM Blockchain, the sector that oversees all the blockchain progress within the company and had started the initiative, has affirmed that CLSNet is now in production with two of the largest banks in the world and that, as the blockchain and the technology itself matures, they will be able to deliver real value.

According to her, the launch of the CLSNet represents the first post-trade production deployment of the blockchain technology in the global market utility.

The function of the CLS is to provide critical plumbing to the foreign exchange market (forex). The company was originally created in 2002 with the goal of diminishing settlement risk for banks when they participate in what is known as payment versus payment trades.

As these trades are completed at the same time, they need trust that you will not be scammed, so now the new CLSNet will help the market to build trust and to fix issues like the lack of automation and standardization in the process.

IBM and CLS have affirmed that companies that make net trades with each other on a regular basis have to do the process manually and they want to help them to do it automatically instead. They claim that the participants will also not need to be exposed to net the payments for forex trades which could expose them to settlement risks.

The general manager of the Hong Kong subsidiary of the Bank of China, Barry Lo, has affirmed that,

“The CLSNet will be very useful to enhance the operational efficiency of trade matching and payment netting for currencies which are settled by the CLS like CNH, the offshore version of China’s official fiat currency, the Renminbi, and this would help with risk management.”

This new service will be used in over 120 fiat currencies to standardize and increase the level of payment netting that they have in the forex market. It will also help the platforms to be in compliance with the code of conduct of the foreign exchange markets that they participate.

Alan Marquard, the Chief Strategy and Development Officer at CLS, has affirmed that,

“A standardized and automated payment netting process will be important to lead into a new age of improved intraday liquidity and for the reduction of costs, as well as an overall improvement of efficiency.”

You should not be surprised to read that CLS and IBM use the Hyperledger Fabric blockchain technology for CLSNet. CLS has been experimenting with the blockchain before Hyperledger existed and, with IBM involved, the choice is very obvious.

CLS has always had a close relationship with IBM but it has also announced an investment of $5 million USD in R3, a consortium that is a rival of Hyperledger. According to Komarraju, the investment in R3 does not impact the future products of the company at all and they will still continue to use Hyperledger Fabric.

However, they believe that the industry will be highly beneficiated by having a choice in providers, which means that may their allegiance to IBM and Hyperledger Fabric is only as good as it is the most profitable choice.

Despite this, IBM and CLS have expanded their collaboration recently and the two companies have already announced a new project called LedgerConn3ect, which works as a blockchain app store and offers blockchain-based services for companies who need them.

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