[Paper] Partior Publishes Paper on the Role of Payment vs Payment in FX Settlement

Foreign exchange is a vital artery in the global economy, facilitating trillions of dollars in transactions daily. Yet, behind this figure lies a persistent challenge: settlement risk.

To address this, FX market participants rely on Payment vs Payment (PvP) arrangements, where the transfer of one currency occurs only if the transfer of another currency occurs simultaneously, thereby reducing the risk of one party fulfilling its obligation without receiving the intended payment in return. 

Despite the clear benefits of PvP arrangements, a substantial portion of FX transactions - over US$2.2 trillion daily out of a total of US$7.5 trillion¹ - are settled outside of existing PvP frameworks. Why? The reasons range from certain currencies being unsupported or unsuitable for PvP settlement or costly.

PvP versus Non-PvP Settlement Methods

While PvP arrangements are predominantly available for advanced economy currencies, many Emerging Market and Developing Economy (EMDE) currencies are not yet supported by such arrangements. As a result, non-PvP settlement remains a common practice for settling EMDE currency trades. This reliance poses risks, especially as EMDE currencies capture an increasing share of the global FX market - currently nearing a quarter of total turnover and projected to rise further².

In addition to the lack of support for EMDE currencies, existing PvP arrangements are hindered by inflexible settlement cycles and the inability to facilitate same-day settlement. These challenges underscore the need for innovative solutions that can address the evolving demands of the FX market.

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In this paper, we explore the challenges in existing PvP and alternative non-PvP arrangements for FX settlement and what is in store for post-trade FX settlements.

Discover how Partior’s decentralised Global FX Settlements solution allows market participants to achieve real-time post-trade settlement for FX trades with its PvP capabilities, eliminating settlement risk and optimising liquidity across AE and EMDE currencies. With 24x7 real-time and atomic settlement capabilities, this eliminates settlement risks for all parties involved in the transaction. Additionally, the solution provides participants with instant access to liquidity, eliminating any delays in the settlement process.

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Risk-free, 24x7 and efficient post-trade settlement with Partior’s Global FX Settlements Solution

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