Given my tenure until Q3 2019 as Interim CEO, I am using this Annual Report as an opportunity to provide you with an overview of performance and progress against our strategy.

Firstly, please join me in welcoming Marc Bayle de Jessé as CLS’s new CEO. Marc joined us in December 2019 from the European Central Bank where he was Director General, Market Infrastructure and Payments, and Chairperson of the Market Infrastructure Board. Marc has played  a central role in revolutionizing Europe’s settlement infrastructure and is extremely well placed to lead CLS. His extensive experience with central banks and market participants will help ensure we continue to respond to the needs of the industry, enhancing and developing our risk mitigation solutions. Marc has already had a significant impact on the organization and I look forward to working with him through 2020 and beyond as he establishes himself at the helm of CLS.

As referenced in previous reports, our overarching strategy at CLS has not changed and the areas of focus highlighted in the 2018 Annual Report and 2019 Interim Financial Report remain consistent. The team has refined the strategy further and is collectively focused on delivering our settlement service every day, while investing in our infrastructure, enhancing our suite of settlement, processing and data solutions, as well as improving our controls structure and procedures. I’m very confident that under Marc’s leadership, we will continue to make good progress in these areas during 2020.

As a leading financial market infrastructure, effective risk management is central to our mission. We pride ourselves in fostering, and maintaining, a strong risk culture that promotes risk awareness and discipline across all our activities. This is a central commitment from the Board, the Executive Management Committee as well as the broader organization, and an area we will continue to enhance. As a result, I am also delighted to welcome Deborah Hrvatin as our new Chief Risk Officer, a risk management specialist who brings significant experience from previous roles at Citigroup and Deutsche Bank to enhance our risk culture and control environment. In addition to building dialog and improving systemic risk mitigation across the ecosystem, she will be partnering with Chief Compliance Officer Michele Fleming to deliver an enhanced culture of risk identification, challenge and mitigation across the organization.

Product and service updates

Following broadly flat year-on-year volumes in CLSSettlement in the first half of the year, overall activity picked up in the second half of the year. Overall, average traded volumes in 2019 were USD1.7 trillion, while average daily instructions increased to 1.0 million, compared to USD1.7 trillion and 0.9 million in 2018, respectively. As we enter our fifth consecutive year of unchanged tariffs, our pricing, which reduces the unit price of each transaction as business activity increases, is at its lowest level since 2015. However we will continue to assess our pricing levels throughout 2020 to ensure we not only exceed regulatory requirements, but also invest, as appropriate, in our settlement infrastructure for the future.

Third-party participation continued to increase during the year, thanks to our global sales team, with total participants in excess of 25,000. There were some notable milestones during this period, including Nomura Asset Management Co., Ltd. (NAM) acting as the first asset manager headquartered in Japan to provide access to CLSSettlement for Japanese domiciled funds, the first Japanese domiciled pension fund accessing CLSSettlement via State Street Trust and Banking Co., Ltd, and China CITIC Bank International Limited (CNCBI) joining CLSSettlement as the first Chinese third-party bank. All these notable milestones demonstrate the ongoing global recognition of CLSSettlement as a leading provider of risk mitigation services.

From a currency expansion perspective we remain in close dialog with the Central Bank of Chile and local market participants to include the Chilean peso as a currency on CLSSettlement. As the first potential South American currency for the settlement service, this remains an extremely exciting development.

…we have continued to make progress with our Convergence program. As highlighted in previous reports, we are now in the final phase of our seven-year-old program which will mark the complete retirement of legacy infrastructure in CLS.

In addition to our participation expansion efforts, we have continued to make progress with our Convergence program. As highlighted in previous reports, we are now in the final phase of our seven-year-old program which will mark the complete retirement of legacy infrastructure in CLS. Our technical foundation in settlement, netting and other post-trade tools will be among the most flexible, resilient and leading-edge in the industry. However, due to the sheer complexity of the project as well as the time needed for the entire community to perform appropriate testing, we have delayed the migration of CLSSettlement onto the new Unified Services Platform. Trevor will provide more detail of the financial impacts of this decision in his report. However, as a financial market infrastructure it is imperative that we prioritize safety and resilience over speed and are engaging with all relevant stakeholders to ensure they are fully aware of developments. As we deliver one of the most sophisticated and up-to-date technology infrastructures in the market, in order to improve efficiency and resilience for all our FX settlement solutions, we must balance this with continuing to deliver CLSSettlement seamlessly.

At the end of July, we went live with CLSNow – our bilateral, same-day gross payment-versus-payment (PvP) settlement service with two participants. CLSNow enables banks to exchange currency positions with mitigated settlement risk on a near real-time basis. Currencies offered include the Canadian dollar, euro, British pound sterling and US dollar, and additional currencies will be added over time. CLSNow is an important step forward in the delivery of our strategy and replaces CLSSameDay (our same-day settlement service for USD and CAD payment instructions) which was deactivated in December 2019.

Within the processing business line, earlier in 2019 we released a series of enhancements to CLSNet, our standardized, automated bilateral payment netting calculation service. CLSNet went live in 2018 and participants now include multiple global banks as well as non-bank financial institutions. By early 2020, we expect that six of the world’s ten largest banks will be on the network, demonstrating the value of the service for market participants. We continue to invest in the growth and resilience of the service and have a roadmap of regular enhancements throughout 2020 and beyond that will expand the value proposition to clients.

The Compression service, developed in partnership with TriOptima, which helps to manage gross notional exposures and reduce counterparty credit risk, continued to go from strength to strength. 2019 was a record year for the service, eliminating USD9.1 trillion of gross notional value from FX forward portfolios, an annual increase of 71%. In Q4 alone, the service compressed USD4.9 trillion of gross notional value, 153% above the previous quarterly high achieved in Q3 2018. This was driven by increased participation from the prime broker and executing broker community, larger trade populations being submitted for compression and increased year-end activity as market participants managed their risk exposure and capital charges. It demonstrates the value the service continues to deliver for our clients, enabling them to further improve their capital efficiencies and significantly reduce risk.

Following the launch of our data business line in 2017 we continue to embed and commercialize our data business line through the expansion of our FX alternative data products. In addition, we have enhanced the data team and focused on delivering reporting and analytics capability. This business line has seen good progress throughout 2019 and we expect this trend to continue into 2020 as we engage with a broader cross-section of the buy- and sell-side community. We also actively recognize the need for our clients to have seamless access to their data and value-added services. As such, earlier this year we went live with the first phase of CLS Direct, our new secure multi- product, multi-channel web-based client platform, which provides a single point of access for many of our new ancillary services and reporting tools, including CLSNet, CLSTradeMonitor and CLSMarketData. This is a very exciting development with multiple enhancements and releases scheduled for 2020.

Investment and financial stability

I have highlighted on numerous occasions that given the sheer level of current investment in our settlement infrastructure and in new services such as CLSNow, CLSNet and Data, we can expect to see a negative impact on our medium-term profitability. In 2019 we delivered a small underlying profit which reflects the significant investment made in further enhancing our control functions in addition to the items noted above.

The Convergence program marks an important milestone in what will be a multi-year investment program which will have an impact on overall profitability for another  two-three years. However, our capital position remains, and will remain, in excess of regulatory requirements.  Trevor’s report will provide further details of our financial position.

The delivery of our strategy continues to be our most important priority as we invest in the excellence and resilience of our services to ensure we operate to the highest of standards expected for a systemically important financial market infrastructure. I look forward to working with Marc and the Executive Management Committee in continuing to deliver this ambitious agenda.

Kenneth Harvey
Chairman of the Board

2019 Annual report and consolidated accounts