Cross currency swap trades expose counterparties to significant settlement risk due to the high value of the initial and final principal exchanges. CLS Group, a leading provider of risk mitigation and operational services for the global foreign exchange market, and Markit, a leading global provider of financial information services, have just announced the launch of a new FX settlement service for the cross currency swaps market. 

CLS cross-currency swaps settlement service

The new service is an extension of CLS’s unique PvP settlement service and uses the MarkitWire trade booking platform to manage message  flows into CLS.

Participants can book and confirm XCCY swap trades through MarkitWire as they do today. For trades that are CLS-eligible, MarkitWire will send the related instructions to CLS on behalf of participants for settlement.

How it works:

• participants book and con rm XCCY swap trades through MarkitWire
• MarkitWire completes validation and eligibility checks in line with CLS-defined static data and settlement eligibility criteria
• MarkitWire sends validated pairs of instructions (one for each counterparty of the XCCY swap) to CLS (using SWIFT network - ISO 20022 financial XML message standards)
• CLS will communicate any business updates relating to these instructions back to the CLS settlement member’s control branch using the existing CLS communication channels
• CLS will also communicate any business updates relating to these instructions (via a trade status report) to MarkitWire.

Banks welcome new service

Andrew Hinchliff, Executive General Manager, Global Markets, IB&M division, at Commonwealth Bank of Australia, commented: “Demand for more effective post-trade clearing and settlement services from regulatory bodies and market participants has never been more acute. The extension of CLS’s settlement service to the growing cross currency swaps market is a welcome addition that will mitigate systemic risk and reduce counterparty exposure across OTC markets.”