Annual Report and Consolidated Accounts

31 December 2017

CLS Group Holdings AG

Recognizing the opportunity to deliver more for our clients, we advanced on our growth strategy to expand our product portfolio.

2017 was a year of great progress for CLS. Our clients continued to navigate the complexities of technological innovation, balance sheet management and cost control. In response, we remained committed to empowering their success by delivering products that meet their settlement, processing and data needs. The outlook across global markets, while positive, remains uncertain, and we at CLS continue to adapt. 

As highlighted in our Interim Financial Report, 2017 was a pivotal year for CLS. Recognizing the opportunity to deliver more for our clients, we advanced on our growth strategy to expand our product portfolio. This in turn is opening up new opportunities to increase participation, with both the buy and sell-side. We continued to deliver this long-term investment program throughout 2017, focused on building the foundations required to deliver an enhanced product portfolio.

Balancing our clients’ needs today with our plans for future product development is central to our longterm success. CLSSettlement remains at the heart of our strategy, and as we continue to deliver the secure and stable settlement service that our clients expect, we will build our business and product portfolio to meet their changing needs. 

As the leading payment-versus payment FX settlement service, CLSSettlement had a record year achieving both the highest value transaction day ever at USD12.0 trillion as well as an all-time high of average daily value of trades settled for the full year of USD5.2 trillion, an increase of 8% compared to the same period last year. While the average daily volume of transactions decreased by 5%, the overall underlying trend for CLSSettlement was one of robust performance, demonstrating the value of reduced risk, improved efficiency and the increased liquidity CLSSettlement provides to clients every day.

Within the settlement space, we continued to work with central counterparties to facilitate the settlement of cleared products involving FX. CLSClearedFX will be open to multiple counterparties. It will apply to a range of FX products and cross currency swaps providing capital, margin, leverage, liquidity and perational benefits to industry participants. Subject to trialing and regulatory approval we expect counterparties to be using the service during 2018.

The development of CLSNow, our same day payment-versus-payment gross settlement service, has also made strong progress. This product has the potential to materially change how the FX market operates and to expand the same-day market through the exchange of liquidity across currencies with PvP settlement. 

In 2017 CLS maintained a strong financial position with a focus on operational excellence and ongoing investment.

CLSNow will offer same-day settlement for trades on a gross basis during times when the opening times for both currencies’ real time gross settlement systems overlap. We expect the service to go live within a year, again subject to trialing and regulatory approvals.

Within the processing product line, we are in the final stages of bringing CLSNet*, our distributed ledger technology-enabled bilateral netting service, to market. This is a significant milestone for the FX market overall. We will employ a phased approach to implementation, with participants having the option of submitting payments over existing SWIFT based channels, or connecting directly to a permissioned distributed ledger governed by CLS. 

The Aggregation Service continued to perform steadily throughout the year. In June we announced that trade aggregation will now extend to the offshore Chinese renminbi, Russian ruble, Turkish lira and Polish zloty. Launched as a joint venture with NEX, the expansion of the service will provide operational efficiencies and risk mitigation benefits to a broader section of the market.

2017 was a year of sustained growth for the FX compression service – triReduce CLS FX. By 31 December, an additional six banks joined the service and nearly USD4 trillion in gross notional value was eliminated over the course of the year. This is a result of the network effect of increased interest by participants in terms of both participation and submission rates.

In addition, clients are now able to both compress trades and offset exposure with new trades where required. This enhancement has created additional value for clients, enabling significant risk reduction and effective management of leverage ratios. The success of the service and its contribution to the smooth and efficient running of the FX market was recognized when triReduce CLS FX won the ‘Best New Technology Product – post trade’ at the FOW International Awards at the end of 2017.

From a data perspective we continued to deliver new solutions and build our presence within the data community. We launched two new products – FX intraday spot volume, pricing and order flow data sets – and joined the Financial Information Services Association, a forum that has been serving the industry for over 25 years. We will continue to use our data to support our clients’ reporting requirements and provide the insight they need to improve trading strategies and decision-making regarding FX risk management.

Participation expansion

We remain focused on developing our relationships across both the buy and sell-side. The Sales team’s efforts to increase third-party participation continues at pace with over 24,000 third parties now accessing CLSSettlement. Notably, following the launch of our affiliate membership category last year, we already have four letters of intent to join using the new category, and we expect the affiliate members to be fully on board in 2018. As we continue to develop new products and services, we anticipate a further increase in, and diversification of, our client base.

Investment in the future

The successful delivery of CLSSettlement remains at the core of our strategy and is the enabler to the delivery of our ambitious growth plan. This is most evident in the continuous investment we have made over the years to ensure we deliver the robust and resilient service you have come to expect.

Given the importance of CLSSettlement, we are now planning the delivery of a program to migrate the service to a best-in-class, multisession capable technology platform, consistent with that which is required of a Systemically Important Financial Market Infrastructure. The Unified Services Platform, or USP, will form the foundation for our future enhanced product portfolio.

All of this aligns with our broader growth strategy, where we have deployed a proportion of our available capital to invest in new products. The investments we are making are essential in ensuring a strong financial position and, longterm, a sustainable future for CLS. I am exceedingly proud of the progress that we have made at CLS in 2017 and equally confident in the plan that we have for future growth. I thank you, our shareholders and our clients, as I thank our exceptional team for the support that you have provided to enable the continued evolution of the company.

David Puth

Chief Executive Officer

Annual financial report 2017