19 July 2021

CLS welcomes changes to the FX Global Code settlement risk principles on payment-versus-payment and netting

CLS, a financial market infrastructure delivering settlement, processing and data solutions across the global FX ecosystem, welcomes changes to the FX Global Code (the Code) which place greater emphasis on the use of payment-versus-payment (PvP) settlement mechanisms where available, and provide more detailed guidance on the management of settlement risk where PvP settlement is not used.[1]

The specific changes to the Code in relation to the mitigation of FX settlement risk and best practice in post-trade processing are:

  • Principle 35: strengthening the importance of PvP settlement to mitigate settlement risk where possible, and the use of automated settlement netting systems where it is not.
  • Principle 50: more detailed guidance on the measurement, monitoring and control of settlement risk where PvP settlement is not available, with a greater emphasis on the confirmation process of bilateral netting and the agreement of predetermined cut-off points.


CLSSettlement, the world’s largest multicurrency settlement system, supports market participants with adherence to Principle 35 of the updated Code as it uses a PvP system, mitigating settlement risk by settling the payment instructions relating to underlying FX transactions simultaneously. Today, the service settles over USD5.5 trillion of payments in 18 of the most actively traded currencies globally, for more than 70 direct participants and over 25,000 indirect participants.

CLSNet is a standardized, automated bilateral netting service for FX trades settling outside the CLSSettlement service in approximately 120 currencies, and supports Principle 35 and Principle 50 of the Code. All trades sent to CLSNet are validated and matched up to the predetermined cut-off times between counterparties for each currency. This ensures only confirmed trades are included in the automated net calculation and that there is a single common record of the net payment obligations. By automating the netting process via a centralised infrastructure, users benefit from greater operational efficiency and increased risk mitigation for currencies currently unable to settle in CLSSettlement.

Marc Bayle de Jessé, CEO of CLS, said: “We fully support the changes to the Code as it will encourage FX market participants to explore ways to mitigate risk further and reduce operational costs by adopting a best practice approach to FX settlement risk management and netting.

“In support of these changes to the Code, and in order to make access to PvP settlement mechanisms more widely available, we are working with the market to evaluate potential PvP solutions for currencies that are currently unable to settle in CLSSettlement. In late 2020, we established an industry working group and are actively exploring opportunities with the market to mitigate settlement risk further and unlock liquidity.

“We are also analyzing trade data from our settlement members to contribute to the design of any new solution and further the industry’s understanding of market participants’ settlement practices. We look forward to updating the GFXC and its members on these initiatives in due course.”

To find out more about how we help support adherence to the FX Global Code, please click here.

[1] The amendments were approved at the Global Foreign Exchange Committee meeting on 28 June 2021.

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