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HSBC Forex Trading Cost Cut Through Cutting Edge Blockchain System

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Blockchain has been touted as having the power to transform industries. The technology debuted in the finance industry where it was initially used by cryptocurrency firms such as Bitcoin. Now, blockchain is being used by major financial institutions.

HSBC is the first major financial institution to publicly announce that it has successfully used blockchain. The bank has reported a reduction in the cost of completing foreign exchange trades by about 25 percent through its blockchain- based system. This cost reduction further underpins the savings technology could offer financial services firms, banks being at the forefront. HSBC’s blockchain project serves as a rare example of application of blockchain technology by a major player in the finance industry.

The bank opened up its EUR/USD platform to better coordinate payments across its Americas, East Pacific, and Europe trading hubs through a “shared permissioned ledger”. It is a blockchain type that allows multiple approved parties to change and update it in real time.

HSBC is aiming to equip its clientele with the tools to ease business and cross-border forex flows. This is especially useful to its corporate clients that have several bases of operation.

Mark Williamson, COO at HSBC, told Reuters that the bank processes close 3500 and 5000 trades per day on its “FX Everywhere” system. These transactions see it settling about US$ 350 billion worth of trades. The London-based lender said it processed US$250 billion worth of FX trades on the platform since February 2018. These new details of the size and impact of the HSBC blockchain project further elucidates the potential of the technology to provide extended operational cost savings in the financial services industry.

The bank refrained from giving precise daily figures for the trades transacted through traditional measures. It, however, indicated that transactions on the system represented a small albeit growing proportion of the total transactions.

A considerable amount of total internal flows worth billions of dollars are likely to be processed on the system. This will help HSBC to manage risk by enabling it to see in real-time exposures across several balance sheets in different client treasuries.

The success of the project demonstrates that blockchain utilization by HSBC is not a one off experiment and has gone beyond a proof of concept. It may pave the way for more investment in similar revolutionary systems that increase efficiency and reduce delays and cost.

What other players are saying

Many major financial players have taken a cautious stance with the technology first underpinned for bitcoin and other cryptocurrencies. The majority of these institutions have had reservations over security concerns, especially due to the concern of not being able to safeguard all elements of the data due to the decentralized nature of blockchain databases.

Questions have also been raised about the regulation of such new technologies as they mark uncharted territory for many institutions and supporting legal frameworks. The impact on current systems is also a major consideration for institutions looking to restructure around such new technologies.

As more time and effort is dedicated to development of more efficient blockchain systems, more solutions will emerge to properly address these emerging issues. Integration of deep learning and other AI systems has been touted as a possible addition to fine-tune blockchain systems.

Implication of HSBC’s blockchain project

More growth in use of distributed ledger technology will be witnessed following HSBC’s reports of a transformed intra-company Forex activity.

Automated manual procedures and reduced reliance on external settlement networks is evidently a major stride. In listing benefits of the system, HSBC noted that the singularity, immutability, and transparency provided by distributed ledger technologies created one shared version of the truth of intra-company trades from execution to settlement. This led to reduction of the risk of discrepancies and delays.

Confirmation and settlement can be automated by matching and netting transactions. This can lead to reduction of costs and reliance of financial institutions on external settlement networks. Another benefit is balance sheet optimization supported by the enhanced certainty of funds as well as the consolidation of different views of cash flows.

With the increased utilization of the distributed ledger systems, the financial service industry is likely to become more efficient and reliable in service provision to clients, Williamson said. The success of this system should go as an encouragement to traditional low risk institutions to invest in underutilized new cutting edge technologies that may prove cost-effective and organizationally beneficial in the long run.


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