CLS Settlement for foreign exchange
CLS Settlement for FX settles payment instructions related to trades executed in FX spot, FX forwards, FX option exercises and FX swaps.
CLS Bank eliminates settlement risk using a payment versus payment (PVP) system whereby both sides’ instructions for an FX trade are settled simultaneously. In addition to CLS’s primary purpose of eliminating settlement risk, the service has improved straight-through-processing, generated a number of operational and liquidity benefits, and therefore cost savings. If all the benefits of CLS are taken into account, it is estimated that CLS costs just £0.07 for every £ 1 million of instructions submitted in value terms.
The CLS Bank system is a process of instruction submission, authentication and matching, with related daily funding and settlement. The system receives payment instructions from Members, which are matched on average within 38 minutes.
These instructions are authenticated and matched, and settlement eligible instructions are maintained by the system until settlement date. In the event that instructions do not match, both submitting Members are notified.
For instructions to be CLS eligible they must meet the following criteria:
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both counterparties must be CLS-enabled
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both currencies must be eligible
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instructions must be submitted to and matched in CLS before 06.30 CET on the relevant settlement date.
CLS Bank operational timeline
| Ongoing submission of instructions |
Settlement Cycle |
Funding Pay-In and Pay-Out processes) |
| up to 06:30 CET |
07:00-09:00 CET |
|
09:00-12:00 CET |
| |
Funding and settlement takes place during a five-hour window when the opening times of the relevant RTGS systems overlap and are open to send and receive funds. |
|
Submit instructions
Settlement Members submit
payment instructions directly to
the CLS system for matching.
Instructions can be submitted
up to 06:30 CET* for each
settlement date.
At 06:30 CET each Settlement
Member receives its final net
pay-in schedule for the day.
|
Funding and Settlement
Settlement Members pay in net funds based on the
06:30 CET schedule to the
CLS Bank account at the
relevant Central Bank.
CLS Bank settles each
pair of matched payment
instructions individually on
a gross basis.
Funding and settlement
processing begins at
07:00 CET.
|
Execution
Between 07:00 and 09:00 CET, CLS Bank
continuously receives funds
from Settlement Members,
settles instructions across its books and pays out funds
to Settlement Members until settlement is complete.
Instructions that cannot
immediately settle remain on the queue and are continually
revisited.
Settlement is normally
completed by 08:30 CET.
|
The funding and pay-out process continues until
10:00 CET for Asia-Pacific
currencies and until 12:00 CET for European and
North American currencies.
Between 09:00 and 12:00 CET the pay-ins and
pay-outs are finalised.
All funds will have been
disbursed back to eligible
Settlement Members by
12:00 CET, ensuring the
efficient use of liquidity.
|
| The CLS operational timeline applies to CLS Settlement Members only. User Members and third parties settling in CLS may operate by a different funding timeline as agreed with their Settlement Member.
* The agreed best practice is to settle same day instructions outside CLS after 00:00 CET.
|
The status of each instruction is available to Members on a real-time basis. On each settlement date, CLS Bank simultaneously settles each pair of matched instructions by making the corresponding debit and credit entries across the Settlement Members’ accounts at CLS Bank. This all takes place during a five-hour window when there are overlapping opening times of the eligible currencies’ RTGS systems. Working in real-time enables simultaneous settlement of both sides’ payments for an FX trade.
CLS significantly improves liquidity management by providing Settlement Members with a multilateral net position on which to base required daily funding rather than gross transaction-by-transaction funding. This reduces necessary funding by over 95% each day. This means that for every US$ 1 trillion of value settled, the CLS community has to fund less than US$ 50 billion in cash. Payment risk is also reduced by the limited number of pay-ins and pay-outs between Settlement Members and CLS each day.
Participants can earn significant cost savings from multilaterally netted funding, and rationalising and consolidating nostro relationships. On average, only 26 payments are made each day per 10,000 instructions settled, a 99.75% payment volume reduction.
CLS results in further cost savings for participants by greatly reducing the number of interest compensation claims from failed settlements.
For more information email joinus@cls-group.com.