CLS settlement service for cleared FX products

3 August 2015

CLS, the leading provider of settlement services for the global foreign exchange (FX) market, today announced that it is working with LCH.Clearnet, a leading global multi-asset clearing house, to develop a service to facilitate the settlement of cleared foreign exchange products.

The new service is consistent with goals set out by the G20 to promote clearing of standardized derivatives. It will be open to all central counterparties (CCPs) and apply to a range of cleared FX products, including OTC and exchange-traded FX options, FX futures and cross-currency swaps. The service will provide a specialized payment-versus-payment (PvP) settlement in all CLS-eligible currencies and will operate separately from CLS's main PvP settlement service. CLS settles an average of USD5 trillion a day for the world’s largest financial institutions.

The service will deliver a number of risk benefits to industry participants. In the event of a clearing member failure, payment netting will substantially reduce the size of the participating CCP’s potential liquidity shortfall, mitigating systemic liquidity disruption. The service is designed to work on an all-or-nothing settlement basis, which minimizes the risk arising from partial or incomplete settlement. CCPs using the service also will benefit from CLS’s expertise in monitoring and processing payment activity.

David Puth, CEO of CLS, comments:
“This is an important milestone in the continued development and safeguarding of the global foreign exchange market. We look forward to working in partnership with LCH.Clearnet, which is ideally placed to develop this service.

We have been working with the CCP community and other industry stakeholders to design and model the most effective way to mitigate settlement risk for cleared FX products. Settlement risk is one of the most significant risks in FX. Our priority is to mitigate this risk, while increasing operational efficiency through our technology and connectivity.”

Gavin Wells, Global Head of ForexClear, at LCH.Clearnet, comments:
“We are delighted to be working with CLS on this initiative. We continue to see increased demand from the market for FX clearing, as firms are keen to benefit from the associated capital efficiencies and improved risk management associated with clearing. The new CLS settlement service is integral to our plans to broaden our service offering by adding products involving physical FX settlement.”

CLS aims to launch the new service in 2016, subject to regulatory approval.

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