CLS Group has announced it will develop a service to facilitate the settlement of cleared foreign exchange products. The US-based financial institution that provides settlement services for the global foreign exchange (FX) market will work with LCH.Clearnet, the global multi-asset clearing house, on the new service.
CLS, which settles an average of $5 trillion a day for the world’s largest financial institutions, will make the service available to all central counterparties (CCPs). It can be used for a range of cleared FX products, including OTC and exchange-traded FX options, FX futures and cross-currency swaps and it will also be in line with the G20 goal of promoting clearing of standardised derivatives.
In addition, the service will provide a specialized payment-versus-payment (PvP) settlement in all CLS-eligible currencies and will operate separately from CLS's main PvP settlement service.
Users of the service will benefit from several risk mitigating factors, including: in the event of a clearing member failure, payment netting will substantially reduce the size of the participating CCP’s potential liquidity shortfall, mitigating systemic liquidity disruption. CLS's CEO, David Puth, said: “Settlement risk is one of the most significant risks in FX. Our priority is to mitigate this risk, while increasing operational efficiency through our technology and connectivity.”
CLS aims to launch the new service in 2016, subject to regulatory approval.