Cross currency swaps submitted to CLSSettlement surges in 2022
FX settlement specialist CLS Group today reported that settled values of cross currency swaps submitted to CLSSettlement jumped 27 percent over a yearly basis.
CLS’ FX settlement service is available both directly, to settlement members, and indirectly, to third-party clients. Over 25,000 third-party clients use CLSSettlement including banks, funds, non-bank financial institutions and multinational corporations.
The group explains that 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.
CLS Group, which provides risk mitigation and settlement services for FX dealers and institutions, attributes the increase in traded values in cross currency swaps to the 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.
CLSSettlement service was one of the most notable spots of CLS’s business over the last two years, with the asset’s the amortization period being reduced, which will continue to impact on its future profitability 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, 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.”
On completion of a multi-year project, CLSSettlement will use a new platform that the company believes will enable more efficiency, multi-session capability, and adhere to the industry standards to support its future goals.
The move also comes as part of a broader strategy that aims to shake off CLS’ image as a traditional settlement services provider. Instead, the company, which was formed in 2002 to reduce FX settlement risks, recently has been keen to promote itself as a provider of innovative products, including post-trade Risk Management , aggregation and netting solutions.