Corporates 

Corporates operating in the FX market today face a range of challenges including pressure to reduce risk, maximise operational efficiencies and comply with an increasing number of regulatory requirements such as Sarbanes-Oxley. Consequently, corporate treasurers need to ensure they have the solutions in place to meet these demands. Settling FX transactions through CLS Bank can help corporates address these issues, while at the same time reduce the number of bank payments and reconciliations.

CLS is the market standard for FX settlement and the benefits don’t stop there.

Benefits for corporates

Elimination of settlement risk
By providing a real time settlement process with legal finality, CLS Bank protects participants against loss of principal associated with FX trades. In the event that an instruction does not settle, neither of the two instructions for an FX trade will be settled and the related funding is returned to the CLS Member for onward credit to its corporate customer.

With the elimination of settlement risk and shorter, more secure settlement periods, corporate treasurers can significantly improve their operational control and oversight of their FX settlements as well as consider new FX counterparties.

Operational efficiency and cost savings
Corporates increasingly look to CLS to help them achieve cost savings through operational efficiencies, some of the benefits include:

• Enhanced straight-through- processing (STP); 
• Reduced number of payments and associated transaction costs;
• Reduced errors, virtually no instances of settlement failure;
• More efficient allocation of monetary and physical resources.

Improved visibility of settlement process
Following each executed trade your settlement instruction would be submitted to CLS via your service provider Member bank. Your CLS-enabled bank is able to provide their customers with lists of matched and any unmatched trades potentially in real-time on the day of trade.  Any issues arising can be actively managed in advance of settlement rather than the cumbersome process of resolving issues following a settlement failure.

Minimised interest charges and compensation claims 
Pre-settlement matching reduces the risk of failed settlements and consequently, any resulting interest compensation claims.

Improved liquidity management 
The CLS settlement cycle involves same day funding which minimises the time funds are tied up to prepare for and complete settlement. Furthermore, whilst settlement in CLS occurs on a gross, individual PvP basis, funding required for settlement is calculated on a multilateral netted basis. Multilateral netting significantly reduces the number and amount of payments that must be made to CLS. This netting effect can also be beneficial in reducing the size of intra-day credit lines required.

Increase in reconciliation speed
By minimising the number of payments needed to settle a day’s trades and reducing trading errors and manual processing, participants are able to improve their cash reconciliation cycle.

Enhanced business opportunities
Greater credit availability from settlement risk elimination can lead to more trading opportunities with a wider range of counterparties and potentially higher value trades at the best price, than may have been available without CLS Settlement.

Regulatory & compliance 
Corporates which participate in the unique legal and operational framework provided by CLS are assisted in complying with the FX industry’s best practices. Operational oversight and control throughout the transaction life cycle can help organisations meet compliance with Sarbanes-Oxley and equivalent legislation. It is this adherence to best practice that is one of the most compelling reasons for settling FX via CLS.

How corporates can use CLS

If you are interested in using CLS Settlement you can use the third party services offered by a CLS Member. Using CLS as a third party is simple. Your selected CLS Member will input instructions relating to your trades and it is able to provide you with an interface with a system that allows you to submit your trades and see real-time trade status and settlement information. In many cases, a service provider will allow you to use your existing nostro accounts for CLS funding purposes.

Implementing CLS

You must have a CLS service provider to sponsor FX trade settlement in CLS. The following steps are offered as a guide to implementing CLS:

• Establish whether your clearing banks offer CLS Settlement. 
• Assess volumes and values of trades in current and future CLS eligible currencies. 
• Ensure that your key counterparties have access to CLS. 
• Establish a project group to assess business case and feasibility. 
• Review and develop your back office processes and test as appropriate.

Implementation typically takes between three and six months from the initial meeting with your selected service provider, although this can vary. The expenditure on back office modifications is different for every organisation; however, the potential savings from settling via CLS are easily identified. CLS has worked with vendors of applications and services to facilitate CLS connectivity and operation.

For more information email joinus@cls-group.com