HSBC and Wells Fargo are performing Payment vs Payment (PvP) foreign exchange trade settlements using distributed ledger technology.

The system had settled $250 million as of close of business Wednesday, according to Mark Williamson, global head of FX Partnerships and Propositions at HSBC.

The solution can settle in as little as three minutes, according to Arjun Jayaram, CEO and founder of Baton Systems, whose Core-FX platform underpins HSBC’s FX Everywhere.

These payments previously were settled asynchronously once per day using a batch process and Continuous Linked Settlement, an international payment system launched in 2002 for the settlement of foreign exchange (FX) transactions. By reducing the time to settlement, the banks also reduced the risk in the trade, Williamson and Jayaram told Bank Automation News.

Typically for such payment exchanges, each party has a risk management system that feeds through to an operations system, which hands off to a settlement system and finally on to a payments system, Williamson said.

“If something goes wrong with a trade, then each bank needs to look back through their respective application stacks to see where the error took place so it can be corrected and reconciled,” he said.

The FX Everywhere solution creates an overlay with existing banking systems to settle the FX payments. It catches issues the moment they occur rather than requiring each bank to launch an investigation, Williamson explained.

Instead of smart contracts, the settlement participants agree to utilize the Baton Rulebook, which governs legal standards related to each currency and complies with the electronic payment laws for the relevant jurisdictions. The banks are currently processing settlements in U.S. and Canadian dollars, GBP and euros, though they plan to settle additional currencies soon.

The $3 trillion HSBC has been working with Baton since 2018 and exploring distributed ledger technology since 2017, Williamson told BAN. HSBC, which had previously used the system to settle trades between its own divisions, plans to expand the system to add more participants.

Mark Jones, co-head of macro at the $1.9 trillion Wells Fargo, said this was the first time Wells Fargo had used the technology in the settlement of live, cross-border FX payments.

“We view this agreement with HSBC as a glimpse into the future rather than an end state in of itself,” Jones said. “It’s clear that blockchain technology is going to have a dramatic impact on the way that many businesses operate in the future, and we see this as the first step of many in a long journey ahead.”

HSBC’s was the third announcement this month of financial institutions leveraging distributed ledger technology in some aspect of FX trade. Last week, State Street revealed it used blockchain and a smart contract to automate the collateral settlement on a margin calculation process for a live trade of a 30-day FX forward contract with Vanguard. Thursday, IBM and HSBC announced they had used distributed ledger to complete wholesale central bank digital currency transactions.

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