Currency swaps subject to CLSSettlement increase in 2022
Foreign exchange settlement specialist CLS Group announced today that the settled values of cross-currency swaps subject to CLSSettlement jumped 27% on an annual basis.
CLS’s FX settlement service is available both directly, to settlement members, and indirectly, to third-party clients. Over 25,000 third-party customers use CLSSettlement, including banks, funds, non-bank financial institutions, and multinational corporations.
The group explains that cross-currency swaps present significant exposure to settlement risk due to the high value of initial and final principal exchanges. By using CLSSettlement, participants can mitigate the settlement risk associated with these trades.
Additionally, as currency swap flows are multilaterally netted with other FX transactions within CLSSettlement, users also benefit from a significant reduction in daily funding requirements.
CLS Group, which provides risk mitigation and settlement services to brokers and foreign exchange institutions, attributes the increase in values traded in currency swaps to the industry’s commitment to the updated version of the FX Global Code settlement risk principles, including emphasis on the use of PvP Mechanisms where available.
The CLSSettlement service has been one of the highlights of CLS’s business over the past two years as the asset’s amortization period has been reduced, which will continue to impact its profitability. future for a number of periods. However, the accounting practice reflects CLS’ strategic decision to replace and modernize the underlying technology platform that supports CLSSettlement.
Commenting on the news, Lisa Danino-Lewis, Director of Growth at CLS, said: “It’s clear that settlement members are realizing the benefits of submitting their cross-currency swaps to CLSSettlement, in part thanks to the focus of policy makers on increasing the adoption of PvP regulation. .
“In addition to mitigating settlement risk, companies that send these transactions to CLSSettlement benefit from significantly lower funding costs due to the efficiency of multilateral netting provided by CLS. On average, only 1% of net funding is necessary to complete the settlement, which frees up cash flow for other business transactions.
Upon completion of a multi-year project, CLSSettlement will utilize a new platform that the company says will enable greater efficiency, multi-session capability, and adhere to industry standards to support its future goals.
The move is also part of a broader strategy to shake up CLS’s image as a traditional settlement service provider. Instead, the company, which was founded in 2002 to reduce foreign exchange settlement risk, has recently made a point of promoting itself as a provider of innovative products, including post-trade risk management solutions, aggregation and compensation.