CLS Annual Report and Consolidated Accounts

31 December 2018

As acting Interim CEO, the last few months have personally been an extraordinary opportunity for me to get into the detail of our operations, working across the organization to gain an even deeper understanding of our position today and to define our collective focus for 2019 and beyond.

The most significant takeaway has been confirmation of the caliber of people across the organization. It is an honor to work with such a talented group of individuals who are so dedicated to making CLS successful and ensuring the stability and safety of the FX market.

To build on Rick and Bryan’s message, CLS’s strategy remains unchanged and 2018 has been a successful year. This is both in terms of new product development, as well as continued growth in CLSSettlement, and we shall continue along the same path. We are further embedding our settlement, processing and data business lines: launching new products that will deliver significant value for our clients. Assuring increased uptake in these products, combined with investment in our unified services platform, remain the key areas of focus for 2019 and beyond.


Within the settlement business line, market growth and increased participation continued to be underlying themes. While overall activity eased off somewhat in the second half of the year, average daily traded volumes grew to USD1.74 trillion, up 9.4% compared to last year.

In addition to our third year of robust FX activity, our sales efforts led to a record 2.5% increase in new business in CLSSettlement. As we enter the fourth year of stable tariffs, combined with increased activity, the cost of using our settlement service has decreased significantly. Our charges, which reduce the unit price of each transaction as business activity increases, are now at their lowest level since 2013. We also saw a considerable uptake of new products, leading to a revenue contribution of GBP6 million over the year.

Third-party participation continued to grow, bringing the total number of third parties to over 25,000. Third-party clients now account for 22% of the total traded volume in CLSSettlement. As the broader third-party market becomes increasingly aware of the risks associated with FX settlement outside of CLS, we are confident that participation will continue to grow.

Brexit remained a key priority throughout 2018. Our Brexit team has worked closely with legislators, regulators and settlement members to safeguard continued access to CLSSettlement for all current participants. We are addressing, as necessary, all legal and regulatory implications in light of legislative developments and will ensure we are appropriately positioned to respond to any outcomes that affect our members, shareholders and employees. While we fell short of a pan-European solution, our work with each of the impacted countries has proved fruitful. We remain confident that CLS is well positioned with respect to all Brexit-related risks.

Other notable milestones in 2018 included welcoming Banco Monex as our first Mexican bank to participate directly in CLSSettlement, as well as  three new affiliate settlement members, NatWest Markets, Santander UK and Barclays UK. In Japan we saw the first corporate, Mitsui & Co, settle its FX transactions in CLSSettlement via a third-party service provider, Sumitomo Mitsui Banking Corporation. And in July the first Japanese domiciled funds were introduced to CLSSettlement by Fidelity International and The Master Trust Bank of Japan (MTBJ) – the start of a coordinated industry-wide effort to onboard the Japanese buy-side community to CLSSettlement over the next few years.

…the delivery of our strategy remains our most important priority. The adverse short-term impact on our financial position can be accommodated and is absolutely required to ensure we deliver long-term resilient solutions that our clients and the market expect.

In addition to the continued growth of CLSSettlement, we successfully launched CLSClearedFX, the first  ayment-vs- payment (PvP) settlement service specifically designed for cleared FX products. LCH was the first central counterparty (CCP) to go live with the service for FX options trades in five CLS-eligible currencies (USD, EUR, GBP, CHF and AUD). This service is open to multiple CCPs and applies to a range of FX products We will work constructively with other CCPs to further expand the service

As global regulation and national changes to monetary policy come into force, liquidity management is an increasingly important factor across the industry. Our same-day gross PvP settlement service, CLSNow, is being developed to address many of those concerns. CLSNow has the potential to materially expand the same-day market through the exchange of liquidity across currencies with PvP settlement, which enables better daily management of liquidity and the exchange of liquidity in a crisis/stress scenario. More than five clients have now signed up to the service and we expect it to go live in 2019. 

The reliability, quality and resilience of settlement lies at the heart of what we do. Our focus is to not only support our clients today, but also protect them for the future. Outside of our operating expenses, investment in our settlement platform is our single biggest cost – and rightly so. As a systemically important financial market infrastructure, we must ensure our settlement business line operates to the highest of standards.

As highlighted in previous Annual and Interim Financial Reports, we are well into our eight-year program to modernize every platform in the company. Our Convergence program is the final step in the complete rewrite of the underlying technology platform supporting our settlement product suite with new, proven technologies. The program will improve efficiency and strengthen the resilience of our FX settlement solutions.

This Unified Services Platform (USP) is completely new from the ground up supporting CLSSettlement, CLSClearedFX and CLSNow. Not only will it be optimized with multi-session capability, USP will enable us to deliver new services, and enhancements to existing services, in a more timely and cost-effective manner, and to the highest level of industry standards. We expect to be fully operational in 2020, following an extended period of trialing and testing.

Once live, USP will enable us to lead the market by enabling continuous settlement. As member banks and central bank systems evolve to extended hours and real time settlement in the coming decade, CLS will be ready to connect the ecosystem.


On 20 November CLSNet, our standardized, automated bilateral payment netting service for buy-side and sell-side institutions, went live with two clients – Goldman Sachs and Morgan Stanley. As the first global FX market enterprise application running on blockchain in production, CLSNet provides mitigation risk for trades not settling in CLSSettlement by standardizing and automating post-trade matching and netting processes. It brings a bilateral payment netting service to approximately 120 currencies, optimizing intraday liquidity, improving operational efficiency, and reducing risk.

In December, three further clients – Bank of China (Hong Kong), Bank of America (BAML) and Intesa Sanpaolo – joined CLSNet, demonstrating growing confidence in the service. Given the need for stability, interoperability and connectivity at scale, we will continue to invest in enhancements to the service to ensure increased uptake over the coming 12–18 months.

As highlighted in the Interim Financial Report 2018, CLSTradeMonitor went live in mid-2018. By delivering a real-time consolidated view of the match status details for all trades submitted to CLS, it enables participating institutions to drive process efficiencies, such as enabling real-time awareness of currency and counterparty exposures and reducing operational and credit risk. CLSTradeMonitor now has 17 clients live on the service.

Since we began our collaboration with TriOptima in 2015 to deliver the award-winning triReduce CLS FX service, the service has gone from strength to strength. As the FX derivative compression solution for the global FX markets, it is becoming an increasingly critical post-trade exposure management tool. The service is supported by major dealers and saw a material increase in uptake during 2018, with a total notional reduced of over USD5.3 trillion for the year. July was a record month for the service, with a record of USD1.2 trillion notional reduced through compression

In addition to the continued accelerated organic growth of the service, 2018 saw a number of additional enhancements to the service. This has included offsetting methodology, enabling clients to either compress trades or offset exposures with new, incremental trades, straight though processing, using Thomson Reuters Trade Notification (TRTN) service, and expansion of the service to third-party participants via their third party service provider. I look forward to the service expanding further as we continue to onboard new clients.

In October of 2018, we jointly decided with Traiana to discontinue the CLS Aggregation Service (CLSAS). This service was created to address operational and capacity challenges experienced by banks during the rise of e-FX and resulting high frequency trading. The market has since matured, and our clients have invested heavily in building increasingly robust internal infrastructures. As a result, the need for trade aggregation has declined and by ceasing operations we will apply greater focus to solutions that address the most relevant and challenging market issues.


The ability to recognize and react to market changes is critical to our clients’ success. They rely on robust transaction data to gain insight into market trends. We are continuing to enhance our data solutions in order to provide clients with insight that improves their trading strategies, helps them make smarter business decisions, and enhances FX risk management.

We expanded the CLSMarketData product suite, launching FX Forecast data in February. We also launched CLSReporting, an end-of-day FX matched instructions report that provides an enhanced view of overall FX trade activity. Data required for reporting under MiFID II will be available in each report, allowing our clients to address their transactional reporting requirements more effectively. In addition, the report enables originators and counterparties to efficiently exchange their trade details.

As we roll out our suite of data products, we will further explore opportunities to use our data to support our clients’ reporting requirements and provide the insight they need to improve trading strategies and decision-making for FX risk management, investment, resilience and regulation

Looking ahead

As Trevor details in his CFO report, the investment in both new products and replatforming, though planned, does impact our medium-term financial position. This impact is not only due to the investment itself, but also the accelerated amortization charges of the current CLSSettlement platforms, which will distort our profitability for a number of accounting periods. In addition, to ensure the platform is fit for purpose and meets the high standards expected of a financial market infrastructure, we will be running both the current and new platform in parallel for nine months, effectively doubling our operating expenditure for that period. However, our capital position remains, and will remain, well in excess of regulatory requirements

To reiterate our messages from previous reports and the statements from Rick, Bryan and Trevor, the delivery of our strategy remains our most important priority. The adverse short-term impact on our financial position can be  accommodated and is absolutely required to ensure we deliver long-term resilient solutions that our clients and the market expect. We look forward to delivering an even higher standard of excellence every day, as one would expect from a provider of trusted market solutions.

Kenneth Harvey

Chairman of the Board and Interim CEO

Annual financial report 2018