Interim Financial Report

30 June 2017
CLS Group Holdings AG

The first half of this year has been one of considerable momentum for CLS. Building on our sustained progress, both financially and across product development, we embarked on delivering the next phase of our strategy during the first half of 2017.

The FX market continues to evolve through structural change, regulatory reform and new technology. To succeed, our clients must navigate these changes efficiently and they need a trusted partner. In 2016 we reviewed our strategy and determined that there was significant opportunity for us to leverage our insight into prevalent market challenges and develop a broader range of forward-looking solutions that reduce risk and create efficiencies. Our diversification is across two key areas: expanding our client base across the buy- and sell-side and building a broader portfolio of services outside our main settlement service.

This enhanced strategy, ratified by the Board in January of this year and presented to shareholders at the AGM in May, establishes a clear roadmap for sustainable long-term growth, while delivering on our financial plan and continuing to invest in the resilience of our operations.

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 continued at pace with over 23,000 third parties now accessing our main settlement session. Notably, following the launch of our affiliate membership category last year, we already have four letters of intent. We expect the affiliate members to be onboarded in 2018. As we continue to develop new products and services, we can anticipate a further increase and diversification of clients.

Product and service updates
Our FX settlement service performed seamlessly during the first half of 2017. The dollar value of transactions settled increased by 3.3% compared to the first half of 2016 to USD5.0 trillion, while the average daily volume of transactions decreased by 9.2% to 784,000 instructions. The ongoing trend of sustained low volatility peppered with spikes of heightened activity continued through the first half of the year, with events including policy decisions by the ECB, and the US and UK governments having an effect on trading activity. In fact, on 21 June we successfully settled USD11.1 trillion, our highest ever value day, driven by the quarterly International Monetary Market (IMM) settlement dates. Our ability to seamlessly process such significant value demonstrates the success of our ongoing investment plan and the resilience of our FX settlement service.

We also made significant progress enhancing our settlement service across two key initiatives. The first is the development of a service to facilitate the settlement of cleared products involving FX. It will be open to multiple central counterparties and will apply to a range of FX products, providing capital, margin, leverage, liquidity, operational benefits and cross-currency swaps to industry participants. We expect to go live with one central counterparty this year and another in early 2018.

We have also begun working with our settlement members to develop CLSNow, a same-day payment-versus-payment gross settlement service to mitigate settlement risk and optimize liquidity in the same-day market. CLSNow will offer same-day settlement for trades on a gross basis during times when the opening times for both currencies’ real time across settlement systems overlap. This product has the potential to materially change how the FX market operates and expands the same-day market through the exchange of liquidity across currencies with PvP settlement. At the end of the first half of 2017, ten of our settlement members have signed letters of intent to use the service and we expect more to join in due course.

The development of CLSNet, our new distributed ledger technology-enabled bilateral netting service, is on track for delivery in 2018. We are currently in the build phase of the project and are working with IBM to ensure the Hyperledger Fabric, the platform for the distributed ledger and an industry accepted, open source solution, meets the requirements necessary for delivering a resilient, secure and scalable service. We will employ a phased approach to implement CLSNet, and offer participants the option of connecting directly to a permissioned distributed ledger, governed by CLS, or submitting payments over existing SWIFT based channels.

In April 2017 we announced an expansion in currency scope for CLSNet. When the new service launches in early 2018, it will now support more than 140 currencies. This significant development is in direct response to market demand and making the service ‘currency agnostic’ in this way will expand the value of the service and attract a much larger range of market participants. Coverage will now include all currencies associated with jurisdictions not on an official black/grey or sanctions list.

The Aggregation Service continued to perform steadily in the first half of the year. In June of this year, 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 Traiana, a NEX Group business, the expansion of the service will provide operational efficiencies and risk mitigation benefits to a broader section of the market.

Following the launch of the award-winning triReduce CLS FX Forward Compression in 2015, we have seen sustained growth in this product, with a particular increase in activity through the first half of this year. An additional five banks joined the service in the first half of 2017 and the total notional compressed during the period more than doubled compared to all of 2016.

In 2016, we made our executed aggregated trade volume data available to subscribers for the first time for the 18 currencies settled by CLS across 33 currency pairs. We are now expanding our market data to include reports covering pricing, forecast, liquidity and order flow measures, all of which will strengthen our offering across multiple client groups.

We will continue to 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 around FX risk management.

Looking ahead

The delivery of our strategy has continued to be an important priority over the last six months. Our focus has been on developing relevant solutions to meet our clients’ needs. This, combined with continued operational excellence and rigorous financial management, is ensuring we build a long-term sustainable future for CLS. Having significantly developed the service offering based upon its core activity of FX settlement, we are now focused on enhancing more broadly the value proposition for our clients. I look forward to providing further updates on our progress.

David Puth

Chief Executive Officer

Interim Financial Report 2017