As we enter our 20th year of service, I am pleased to report that the company has never been in a better position to support the foreign exchange market. 2022 was a defining year for CLS. It marked 20 years of service to the FX market, 20 years of risk mitigation, 20 years of maximizing liquidity and 20 years of delivering operational efficiency – all for the good of the FX ecosystem.
The FX market continues to navigate a period of considerable uncertainty driven by broader geopolitical tensions and increasing macroeconomic challenges. Regulation, rising interest rates and shrinking central bank balance sheets are having a material impact on liquidity, and market participants are looking for ways to optimize that liquidity and further mitigate market and operational risk. This, if anything, has reinforced the importance of critical financial market infrastructures like CLS to continue their mission and deliver financial stability. We remain true to our purpose: strengthening resilience and efficiency in the FX ecosystem through global oversight and mutual ownership.
“While we saw record volumes for both services throughout the year, the most significant growth was in CLSNet, where the average daily value of net calculations increased 328% year-on-year”
In addition, settlement risk continues to be an area of discussion and debate among FX market participants. Despite the growing number of financial institutions choosing to settle their FX trades through CLSSettlement, there is growing concern by policy makers and market participants that settlement risk remains high – in particular for those currencies not in CLSSettlement. We support the industry’s push for further adoption of PvP settlement mechanisms and are engaging with our clients and the broader market in a search for credible solutions to address settlement risk in currencies not eligible for CLSSettlement.
In the meantime, we continue to encourage the use of CLSSettlement for the 18 settlement-eligible currencies, and of CLSNet, our bilateral payment netting calculation service, for those currencies that are not. While we saw record volumes for both services throughout the year, the most significant growth was in CLSNet, where the average daily value of net calculations increased 328% year-on-year during 2022. As more participants are onboarded onto the service, we expect volumes to increase further throughout 2023 and 2024.
The successful delivery of these services requires resilience above all else – across our infrastructure, controls and cybersecurity. I see this as an area of absolute focus for the organization, and one in which we will continue to invest significant time and financial resource. There is a need for ongoing investment in our technology, operations, risk management practices, controls, people and product enhancements to ensure we continue to deliver services that meet the standards of resilience expected of a critical market infrastructure. While we still have a significant investment program in play, our financial performance was marked by a return to profit for the full year. This was thanks to a combination of increased product revenue, strong cost control, and a reduction in amortization charges compared to previous years.
Finally, I would like to take this opportunity to thank our departing Board members: Vidya Bittianda, David Gary, Michael Lawrence, Dominique Le Masson, Bryan Osmar, William Stenning, Fabrizio Tallei, Ronnie Yam and of course my predecessor Ken Harvey for the support they have provided to me, the Board, the Executive Management Committee and the broader team through their collective insight and deep understanding of the ecosystem in which we operate. Please join me in wishing them every success in their future endeavours.
As CLS evolves to meet market challenges, I look forward to continuing to work with my Board colleagues and the Executive Management Committee to support our clients through the delivery of secure, stable and resilient services.
Chair of the Board