CLS Settlement for OTC credit derivatives 

CLS has partnered with The Depository Trust & Clearing Corporation (DTCC) to provide an automated, seamless processing and settlement environment for the handling of OTC credit derivatives contracts on a global basis. The partnering of these two industry-owned organizations provides an integrated global payment processing infrastructure for the OTC credit derivatives market, linking DTCC Deriv/SERV's Trade Information Warehouse (Warehouse) with a central settlement facility. It addresses the need for further enhancements to the post-trade processing infrastructure for OTC derivatives to reduce operational risks in this market.

How it works

While most OTC credit derivative transactions are now matched and confirmed electronically through Deriv/SERV, market participants still bilaterally settle payments over the life of each contract in a fragmented and non-standardized manner. The Warehouse automates and centralizes the most up-to-date information about a derivatives contract, and links this data with CLS’s electronic settlement process, so that payments take place automatically, resulting in more efficient, accurate and complete payment processing.

The Warehouse generates bilaterally netted payment instructions (at a recent quarterly central cash settlement cycle the gross number of cash settlements was reduced by 99.9994%) and sends them to CLS Bank. CLS Bank automatically notifies its Settlement Members, who effect settlement through CLS Bank on a multilateral, netted basis. Payments through the service are made in five currencies: the US dollar (USD), euro (EUR), Japanese yen (JPY), British pound (GBP) and Swiss franc (CHF).

Benefits

Through CLS, Warehouse customers gain settlement certainty – all payment instructions generated by the Warehouse and settled by CLS are final and irrevocable in immediately available funds. The Warehouse receives real-time information on the status of all payment instructions that have been submitted to CLS Bank.

CLS Settlement for OTC credit derivatives simplifies and streamlines the payment process for bilateral contracts and works with DTCC Deriv/SERV’s global centralized repository for OTC derivatives contracts ensuring that record-keeping is automated and trading parties’ ability to track their contractual obligations is enhanced.

For more information email joinus@cls-group.com.