BME has obtained approval from the Bank of Spain to implement an innovative system for settling foreign exchange transactions in a payment versus payment (FXS) mode.
This new system offers numerous advantages over bilateral settlement and is designed to improve efficiency and reduce the risks associated with Forex transactions.
BME will offer the FXS system to eliminate the principal risk of foreign exchange transactions that are settled bilaterally, where one of the counterparties would face the loss of the total transaction amount if the other did not deliver the sold currency.
The project arises from the demand received from some banks and financial institutions as a solution to the inherent problems of bilateral currency settlement, including the rapid consumption of credit lines, which reduces the potential business between entities. The payment versus payment settlement provided by FXS will drastically reduce the reliance on credit lines, increasing the volume and number of possible counterparties.
Additionally, FXS offers other efficiencies such as the integration of the service into the SWIFT network and the netting of all transactions between two counterparties, which simplifies settlement operations, reduces costs, and optimises capital usage.
The FXS system will be available to any financial institution in the European Union and Switzerland. According to data from the Bank for International Settlements (BIS), only in Spain are foreign exchange transactions worth 18 billion euros settled daily with bilateral risk.
BME is working on other initiatives to increase its presence in the foreign exchange segment with the aim of expanding the range of assets and showcasing its technology and distribution capacity through its members.
