CLS is the worldwide clearing and settlement system that settles FX transactions on a payment-versus-payment basis. Set up in 2002, CLS removes FX-settlement risk and provides a netting service to improve corporate treasury department FX efficiencies.
To settle an FX transaction, counterparties need to exchange principal (value of the trade) in two currencies. Settlement is the risk that one party to an FX transaction delivers the currency it sold, but does not receive the currency it bought from its counterparty. The result is
a loss of principal. CLS mitigates this by simultaneously settling the payments on both sides of an FX trade.
FX settlement service is available both directly, to settlement members, and indirectly, to third-party clients, e.g. corporates. CLS members include over 70 of the world’s largest financial institutions. Over 25,000 third-party clients use our service, including banks, funds, non-bank financial institutions and multinational corporations. There are now around 100 larger multi-national corporates using the service. Currently, CLS settles 5.0+ USD trillion on average each day.
The typical funding flows are shown below:
Source & Copyright©2019 - CLS
CLS operates 24 hours a day, 5.5 days per week closing on Friday and reopening on Sunday evening CET.
The global FX market is limited by the lack of a standardized payment netting process for trades settling outside CLSSettlement. payment netting service for buy-side and sell-side institutions’ FX trades will help address these challenges. CLSNet is a standardized, automated bilateral payment netting service to support FX trades not settling in CLSSettlement. It is used by buy-side and sell-side participants including corporates.
Participants can submit their FX instructions to CLSNet for spot, tom/next day, forwards, non-deliverable forwards (NDFs), swaps and same-day trades for more than 120 currencies. Also, CLS offers participants the option of submitting their net payment instructions via SWIFT channels.
The main benefits are:
- Operational risk mitigation
- System processing and operational efficiencies
- Liquidity enhancements.
New CLS CEO
CLS today announced the appointment of Marc Bayle de Jessé as its new CEO, effective 2 December. Marc joins CLS from the European Central Bank (ECB) where he is currently Director General, Market Infrastructure and Payments and Chairperson of the Market Infrastructure Board, and has been closely involved in integrating CLS into the payment systems infrastructure and processes.
Marc, reflecting on his new role said, "As a leading global market infrastructure provider, CLS plays a crucial systemic risk-mitigation role in the FX industry. I am looking forward to ensuring the organization continues to deliver the highest level of service to its clients and shareholders, as well as further expanding its capabilities as a trusted market solutions provider.”
CTMfile take: For corporates, CLS makes sense both operationally and for reducing risk. There must be many more corporates who would benefit from using the service.
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