Baton Systems comments on GFXD paper about reducing settlement risk

Rick Steves

“Settling these transactions via CLS within the given time constraints may not be possible and participants are obliged to use other settlement processes.”

Following the release of the latest Global FX Division’s (GFXD) paper published earlier this month, Alex Knight, Head of EMEA at Baton Systems, came forward to provide his view on the matter, which can be summed up as “full agreement with the need to reduce settlement risk”, but manual settlement netting processes should be kept to a minimum.

“We absolutely agree that settlement netting is preferable to gross settlement, however through discussions with industry participants we’ve been repeatedly surprised by just how much flow fails to be netted. This is often because netting presents such a massive challenge to operations groups relying on legacy, siloed technology without the flexibility to net on a continuous or configurable basis”, said Alex Knight.

“If netting is to become the norm we believe the adoption of automated and configurable netting practices that flow seamlessly into a PvP settlement process will be key. The report cites CLS as the example, but there are other alternative offerings available that empower firms to achieve automated, configurable bilateral netting and then settle on a PvP basis on demand.

“Although the paper references the use of manual settlement netting processes we would advocate this should be seen as a last resort. Technology is available today to automate these processes. Manual netting is massively resource intensive and introduces the potential for human error and operational risk both in the calculation of the netted values and through the agreement process.

Baton addresses issues with transactions outside of CLS cut-off times

Baton Systems made the point that consistent settlement practice is preferable to ad hoc arrangements and that automated processes should come first.

“There are many reasons why a firm may need to pull certain transactions from a netting set and the point I’d like to make is that doing so doesn’t necessarily mean that those trades then need to be settled manually or without the safety of PvP. With distributed ledger technology, because the parties are viewing shared data and using shared workflows, they simply need to agree that those transactions are to be removed from the netting set and submit them to an additional automated process for isolated settlement on a PvP basis. Therefore, negating the need for manual processing and the potential of settlement risk exposure”, Baton Systems’ Head of EMEA continued.

“We fully agree that every effort should be made to settle transactions using automated processes. The paper cites CLS as an example of an automated PvP system and the need to submit and match transactions in a timely manner. However, the reality is that banks often conduct transactions that fall outside of CLS cut-off times such as value today transactions. Settling these transactions via CLS within the given time constraints may not be possible and participants are obliged to use other settlement processes. To meet the need for a more flexible approach whilst retaining uniformity, Baton’s technology enables netting calculations to run continuously right up to the point the parties choose they want they settle – which they can then do on-demand, multiple times a day and then complete the entire process in a matter of minutes. As a result, banks now have the opportunity to settle as large a population of their transactions as possible through an automated and inclusive PvP mechanism.

Read this next

Market News

Stock Market Analysis: Is NVDA Losing Its Leadership?

Since the beginning of the week, the S&P 500 Index (US500) has seen a modest increase of about 0.58%, whereas NVDA’s share price has experienced a decline of approximately 3.8%. This recent divergence raises concerns among Nvidia stock investors — could it signify a loss of NVDA’s market leadership?

Industry News

ESG: Australian regulator wins first greenwashing court case against Vanguard

Vanguard admitted that a notable portion of the securities within both the Index and the Fund did not undergo the promised ESG scrutiny.

Fintech, Uncategorized

BitMEX integrates HALO from Solidus Labs for cross-market surveillance

““The recent approval of the Spot Bitcoin ETF has piqued the market’s interest. As a result of price volatility, the trading volumes for crypto derivatives have gone up substantially. HALO, with its advanced technology and crypto-native detection architecture, will enable BitMEX to smoothly and safely scale trade surveillance across its increased trading volumes and provide the necessary safeguards for new product launches.”

Reviews

IUX Broker Review

IUX, recently rebranded from IUX Markets, stands as a multi-asset Forex broker recognized for its regulatory compliance across various jurisdictions.

Industry News

Horizon Software rebrands to Horizon Trading Solutions

“Horizon Trading Solutions has seen accelerated global growth over the past year to meet the rising demand for our trading solutions and built-for-purpose technology offering. The choice to rebrand represents a key part of this development, while maintaining our heritage and history in the industry.”

Market News

USDJPY has surged to levels last witnessed in 2022. Should we consider opening a short position?

The recent resurgence of the US dollar has propelled USD/JPY to new heights, touching levels not seen since 2022. This surge comes against the backdrop of stable short-term yields and ongoing economic data that fails to signal a significant slowdown, prompting questions about the extent of current monetary easing measures.

Digital Assets

DED Trends on Twitter After Memecoin Snapshot Announcement

Polkadot-backed community coin #DED, made it to the trending charts on X, demonstrating community’s engagement and interest behind the memecoin. 

Digital Assets

BlockDAG Presale Nears $10 Million Amid Toncoin’s Momentum, Green Bitcoin’s Presale, and the Rise of Other Top Cryptos

This article will examine three top trending topics: Toncoin’s potential, Green Bitcoin’s innovative presale, and BlockDAG’s sustainable mining approach. These cryptocurrencies take centre stage for their uniqueness and innovation.

Digital Assets

Coinbase scores minor victory vs SEC, but lawsuit to proceed

A federal judge in Manhattan, U.S. District Judge Katherine Polk Failla, ruled on Wednesday that the U.S. Securities and Exchange Commission’s (SEC) lawsuit against Coinbase can largely proceed.

<