Treasury Today – March 2008  

A question answered

“I have been asked to look into the possibility of using CLS for settling FX transactions, but there don’t seem to be many corporates using the service. I’m concerned that there may be problems I haven’t heard about. Please could you ask those of your readers that are using CLS or those that have decided against to comment?”

By Jonathan Butterfield, Executive Vice President, Marketing and Communication, CLS Bank International

There are currently 21 corporates using the CLS Bank service. Whilst it is true that this number is small compared to the number of banks and funds using the service, there is no doubt that corporates with an active presence in the FX market can benefit significantly from CLS participation. Companies such as GSK, HP, Nike, Renault, Unilever and Volvo have successfully implemented CLS settlement and are experiencing the risk and operational benefits that CLS brings.

CLS Bank protects participants against loss of principal associated with FX trades. In the event of a settlement failure by one party, the principle is immediately returned to the other. With the elimination of settlement risk and the shorter, more secure daily settlement cycle, corporate users have reported significant operational gains and control and oversight of their FX settlements and the cash movements from their trades. We have recently started settling non-deliverable forwards, NDFs, against 48 reference currencies and also expect to add the Mexican peso and Israeli shekel to our eligible currency list in the second quarter.

Corporate participation in CLS requires the company to select a service provider. Most of the major cash management banks offer these “third party “services. It is true that their major sales efforts have been directed towards banks and other types of financial firms. You may therefore have to push your bank(s) to provide their product experts for you to consult.

I would add that the early adopters all have centralized treasury operations for FX. They have concentrated their currency management activities in either one or a limited number of locations. They therefore have organizationally matched the centralized model used by the banks who participate and our understanding is that this centralization generates greater efficiencies and improved business cases to support participation.

CLS Bank participation has brought real benefits to our corporate users in terms of risk reduction, time value of cash assets, and straight through processing, both in terms of accuracy in information and process, and reliability. Challenge your cash management banks to show you how participation could work for your company.