Continuous Linked Settlement (CLS) is the new private sector response to increasing regulatory pressure to reduce foreign exchange settlement risk exposures. The initiative has been live since the end of 2002 and is endorsed by the G10 central banks and lead regulators. The primary objectives of CLS are to eliminate the inherent settlement risk from the current foreign currency settlement processes and to provide a mechanism for containing any systemic risk arising from the failure of a major market participant.
Standard Chartered at the forefront
Standard Chartered Bank has been deeply committed to this industry initiative since its inception in 1997 and holds full shareholder status in the new bank. Standard Chartered operates as a full settlement member within CLSB and extends comprehensive third party services to our clients, enabling them to take full advantage of the settlement risk benefits associated with FX settlement through CLS.
How it operates
CLS has already changed the way banks conduct and settle their FX settlement business. For the first time, it introduces, 'payment-versus-payment' (PvP) into the foreign exchange settlement process.
The CLS Bank (CLSB) provides the necessary account structure and mechanism through which the separate payment legs of an eligible foreign exchange trade are simultaneously exchanged (using a payment-versus-payment process), thus eliminating the associated settlement risk. Similarly, all funding obligations are discharged by the use of an overlapping window for the RTGS systems in the CLS countries.
CLS started with seven currencies – AUD, CAD, CHF, EUR, GBP, JPY and USD, but during this year the three non-Euro Scandinavian currencies will be added, as well as the Singapore Dollar.
CLS is expected to extend its reach thereafter, adding new currencies, and an increasing number of participants through an expansion of third party services, whereby non-settlement members of CLS may access the benefits of the system, without incurring the start-up costs.
Contact us
Stephen Street
Stephen.street@standardchartered.com