Cross currency swaps record growth in settled values
CLS witnessed continued growth in settled values of cross currency swaps submitted to CLSSettlement, with a 27% year-on-year increase (Q2 2022).
Cross currency swaps exhibit significant settlement risk exposure due to the high value of the initial and final principal exchanges. By using CLSSettlement, participants can mitigate the settlement risk associated with these transactions. Furthermore, as cross currency swap flows are multilaterally netted against other FX transactions within CLSSettlement, users also benefit from a significant reduction in daily funding requirements.
The increase in traded values in cross currency swaps submitted to CLSSettlement demonstrates industry commitment to the updated version of the FX Global Code’s settlement risk principles, including greater emphasis on the use of PvP mechanisms where available.
Commenting, Lisa Danino-Lewis, Chief Growth Officer, CLS said: “It is clear that settlement members are realizing the benefits of submitting their cross currency swaps to CLSSettlement, driven partly by policymakers’ focus on increasing the adoption of PvP settlement.
“In addition to mitigating settlement risk, firms sending these trades to CLSSettlement benefit from significantly lower funding costs due to the multilateral netting efficiencies CLS provides. On average, just 1% net funding is required to achieve settlement, which frees up cash flow for other business operations.”