CLS operates a global multicurrency cash settlement system through which settlement risk can be mitigated with finality.
CLS uses a unique combination of payment versus payment settlement over CLS central bank accounts, real time gross settlement (RTGS) systems and multilateral payment netting supported by a robust and resilient infrastructure.
The Settlement Service:
- Mitigates FX settlement risk in the world’s single largest market
- Settles payment instructions relating to transactions in 18 currencies and executed in the following instruments: FX spot, FX forward, FX swap and OTC credit derivatives
- Is available directly (Settlement Members) or indirectly (through Settlement Members providing access to third parties) to FX market participants
In addition to CLS’s primary purpose of mitigating settlement risk, the service has delivered liquidity and operational efficiencies for its Members:
Liquidity Efficiencies Through Multilateral Netting
Each day prior to settlement in each currency, CLS calculates the funding required of each Settlement Member on a multilateral netted basis for each currency, after taking into consideration all payment instructions of the Settlement Member that are due to settle that day in that currency. In addition, we also offer a liquidity management tool - in/out swaps. This service, combined with multilateral netting, results in an average funding requirement of less than 1% of the total value of all trades.
Operational Efficiencies Through Automation
The settlement service maximizes the benefits of straight-through processing and minimizes operational errors and their associated costs. Real-time information on the status of payment instructions is provided to, and therefore easily monitored by, Settlement Members. Unmatched payment instructions can be followed up promptly and corrections made as necessary before settlement.