Continuous linked settlement

Continuous Linked Settlement is a process by which a number of the world's largest banks manage settlement of foreign exchange amongst themselves (and their customers and other third-parties). The process is managed by CLS Group Holdings AG and its subsidiary companies and include CLS Bank, a settlement bank regulated by the Federal Reserve Bank of New York. The Group was formed in 1997 and the settlement system has been operational since 2002.[1] As of February 2009, there were 73 shareholders and 62 settlement members as well as 4,576 Third Party participants (411 banks, corporates and non-bank financial institutions and 4,165 investment funds) that participate in the system.

CLS Bank settles transactions on a payment versus payment basis, also known as PVP. When a foreign exchange trade is settled, each of the two parties to the trade pays funds in one currency and receives funds in a different currency. PVP ensures that these payments and receipts happen simultaneously. CLS Bank acts as the common counterparty between all participating banks; each party is required to have the funds it is to pay out deposited with CLS Bank in the hours before settlement occurs. CLS settles payments by debiting the settling party's accounts at CLS in the amount the party owes and simultaneously crediting the party's account with the foreign currency amount is it to receive. Settlement generally takes place during a five-hour window when all the relevant real-time gross settlement (RTGS) systems are open and able to make and receive payments. Because the clearing occurs in advance of settlement, settlement is on a real-time net basis.

Without PVP there is a (potentially devastating) chance that one party could pay its leg of the transaction to the other, but never receive the reciprocal payment (which could happen if the other institution defaults in the hours between receipt of one leg and payment of the other). This is known as settlement risk, or Herstatt risk.

A key feature of CLS is the settlement of gross-value instructions with multi-lateral net funding. On most days most participants will have more than one trade to settle - in practice, major banks will have hundreds or thousands of trades each day. Multi-lateral net funding allows each settling bank to transfer only the net amount of its payment obligations in each currency, rather than the total amount of each trade to be settled. On average, CLS netting efficiency is in the region of 95%; that is to say, each trillion dollars of gross value settled might require aggregate pay-ins of "only" $50 billion.

Since it began operations, CLS has rapidly become the market-standard for foreign exchange settlement between major banks. On September 21 2011, it settled a record 1,960,492 instructions a day in 17 currencies (which represent some 95% of global foreign exchange trading). These instructions contained a gross value of approximately US$ 8.9 trillion. This new record exceeded the previous record for number of instructions settled of 1,936,790 on November 26, 2010.

The single day record for gross-value settlement, set on 19 March 2008, stands at US$ 10.3 trillion, for 1,113,464 payment instructions.

An additional benefit of the CLS system is the increased straight through processing capabilities.

Contents

Currencies

CLS currently trades the following currencies:

Country/Entity Symbol Currency
 Australia AUD Australian Dollar
 Canada CAD Canadian Dollar
 Denmark DKK Danish Krone
Europe Eurozone EUR Euro
 Hong Kong HKD Hong Kong Dollar
 Israel ILS Israeli new shekel
 Japan JPY Japanese Yen
 Mexico MXN Mexican Peso
 New Zealand NZD New Zealand Dollar
 Norway NOK Norwegian Krone
 Singapore SGD Singapore Dollar
 South Africa ZAR South African Rand
 South Korea KRW South Korean Won
 Sweden SEK Swedish Krona
 Switzerland CHF Swiss Franc
 United Kingdom GBP Pound Sterling
 United States USD United States Dollar

See also

References

External links


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Continuous Linked Settlement — ⇡ CLS …   Lexikon der Economics

  • Settlement (finance) — Settlement (of securities) is the process whereby securities or interests in securities are delivered, usually against payment, to fulfill contractual obligations, such as those arising under securities trades. This involves the delivery of… …   Wikipedia

  • Settlement of the Americas — …   Wikipedia

  • Jamestown Settlement — The James Settlement was the first permanent English settlement in North America. [ [http://www.timepage.org/cyc/gen/renaissance.html | Timeline of exploration of N.America] ] Named for King James I of England, Jamestown was founded in the… …   Wikipedia

  • Резервная валюта — (reserve currency) Резервная валюта это иностранная валюта, которой владеет государство, доверяя ее стабильности Мировые резервные валюты, функции резервных валют, преимущества и недостатки их использования, доллар, евро, фунт, франк и рубль как… …   Энциклопедия инвестора

  • CLS — may refer to: Contents 1 Academic fields 2 Educational institutions 3 Academic associations, divisions, programs and facilities 4 Societies and assoc …   Wikipedia

  • Transfert Banque de France — Le système Transfert Banque de France (TBF) est un système à règlement brut en temps réel (RBTR ou en anglais RTGS), qui constitue la composante française de TARGET. Les participants accèdent à TBF via le réseau SWIFT et la plate forme de la… …   Wikipédia en Français

  • Transfert Banque de France (TBF) — Transfert Banque de France Le système Transfert Banque de France (TBF) est un système à règlement brut en temps réel (RBTR ou en anglais RTGS), qui constitue la composante française de TARGET. Les participants accèdent à TBF via le réseau SWIFT… …   Wikipédia en Français

  • Transfert banque de france — Le système Transfert Banque de France (TBF) est un système à règlement brut en temps réel (RBTR ou en anglais RTGS), qui constitue la composante française de TARGET. Les participants accèdent à TBF via le réseau SWIFT et la plate forme de la… …   Wikipédia en Français

  • Transferts Banque de France — Transfert Banque de France Le système Transfert Banque de France (TBF) est un système à règlement brut en temps réel (RBTR ou en anglais RTGS), qui constitue la composante française de TARGET. Les participants accèdent à TBF via le réseau SWIFT… …   Wikipédia en Français

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.