Buy side uptake of CLSSettlement continues

Nomura Asset Management provides access to CLSSettlement for Japanese domiciled funds

19 February 2019

CLS, a market infrastructure group delivering settlement, processing and data solutions, today announces that Nomura Asset Management Co., Ltd. (NAM) is the first asset manager headquartered in Japan to provide access to CLSSettlement for Japanese-domiciled funds.

NAM is working with three trust banks: The Nomura Trust and Banking Co., Ltd. (NMTB), Japan Trustee Services Bank, Ltd. (JTSB) and The Master Trust Bank of Japan, Ltd. (MTBJ), to offer CLSSettlement to a total of 21 investment trust funds. NAM and the trust banks are supported by a number of global custodian banks, including Brown Brothers Harriman & Co. (BBH) and Citibank, N.A. (Citi) for NMTB, with Sumitomo Mitsui Trust Bank (U.S.A.) Limited for JTSB, and BBH for MTBJ.

While large banks and securities companies in Japan are already settling FX trades in CLSSettlement, asset managers and pension funds have not until recently because Japanese-domiciled fund FX transactions involve many stakeholders such as trust banks, asset managers, global custodians and counterparty brokers. Following guidance from the Basel Committee on Banking Supervision recommending the use of payment-versus-payment (PvP) settlement and netting where appropriate to all market participants, the Financial Services Agency of Japan along with Bank of Japan brought together Japanese wholesale FX market participants to promote PvP settlement and assist the industry in adopting CLSSettlement. This latest development marks another significant milestone for the coordinated industry-wide effort to onboard the Japanese buy-side community to CLSSettlement.

Commenting on the development, Margaret Law, Head of Client Management - APAC, CLS said, "We are seeing increased interest in the mitigation of settlement risk by the asset management community in Japan, and in Asia Pacific more generally, as a result of the operational best practices which are being expected by end clients and promoted by drivers such as the FX Global Code. The latest announcement around the buy-side take up of CLSSettlement in Japan is testament to this trend and we expect an ongoing increase in participation in the region as a result."

 

Kunihisa Ono, Managing Director of NAM Trading Dept. said "We are pleased to be the first asset manager headquartered in Japan to provide Japanese domiciled funds access to CLS Settlement. We are managing a wide range of funds and trading foreign exchange with both domestic and foreign counterparties. We need to mitigate settlement risk, and think that CLS is effective in that respect. We are preparing to further expand CLS settlement in the future."

Toshikatsu Furumi, Managing Director and Head of Prime Future Securities Services in Citi Japan said, “Citi has been supporting NMTB from very early stage of the implementation project. Citi has facilitated end-to-end testing of CLS settlement for NMTB with its major FX counterparties, fully taking advantage of CLS Bank’s JAS testing environment connected to Citi’s testing environment, so that NMTB fully gets comfortable entering into production phase. There is increasing appetite amongst our buy-side clients to mitigate settlement and operational risk and we are pleased to be able to support our clients in achieving this as a major direct CLS participant since its establishment.”

Japan is one of the world's largest centers for currency trading and a crucial hub for the Asian FX community. The Japanese FX market accounts for 6.1% of global over-the-counter FX turnover.1 In recent years it has benefitted from a significant increase in cross-border currency flow and foreign direct investment, but this has also increased exposure to a wider range of market participants including funds and their counterparties.

1 Bank for International Settlements Triennial Central Bank Survey, 2016

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