CLS announces collaboration with 12 global banks to pilot PvP solution

September 13, 2021 - CLS, the FX market utility that provides settlement, processing and data solutions across the global FX ecosystem, announced today that its working group of 12 settlement members with global operations is participating in a pilot to evaluate potential payment-versus-payment (PvP) solutions for currencies that are not currently eligible for CLSSettlement. The pilot, which started in June, is using trade data from each participating settlement member to better inform the overall design of the optimal solution.(1)

Recent public policy proposals acknowledge the need for greater PvP adoption, including building block 9, “Facilitating increased adoption of PvP”, and related action items in the Financial Stability Board’s Cross Border Payments Roadmap. The Global Foreign Exchange Committee has recently published an updated version of the FX Global Code.(2) The latest version includes changes to the settlement risk principles, including greater emphasis on the use of PvP mechanisms where available, and provides more detailed guidance on the management of settlement risk where PvP settlement is not used.

CLS established the working group in late 2020 in response to input from market participants and several public policy initiatives to encourage PvP adoption. CLS has also recently completed the next stage in its multi-year technology investment program to deliver one of the most sophisticated, flexible and resilient post-trade technology infrastructures in the industry.

Marc Bayle de Jessé, CEO of CLS, commented, “CLS is uniquely placed at the center of the FX industry to work in partnership with the public and private sector to develop a PvP solution that will address settlement risk for currencies that are not currently eligible for CLSSettlement. CLSNet – our bilateral payment netting calculation service – is already open for approximately 120 currencies, reducing risk and delivering efficient, automated and standardised post-trade netting calculation and processing services for banks, asset managers and corporates across the globe.

“We are now working with the market to evolve the service to further mitigate settlement risk and unlock liquidity. The support we have received from our settlement members through their participation in the working group and pilot is a vote of confidence in CLS’s ability to solve this industry challenge by creating a PvP solution for currencies not supported by CLSSettlement.”

Denis Manelski, Global Head of FX and Local Currency Trading, Bank of America, commented, “CLS has greatly enhanced global FX market liquidity by providing critical multilateral netting and PvP settlement services to a significant portion of the OTC FX market. We are proud to support the extension of CLS FX risk management services by participating in CLSNet and look forward to collaborating further on important FX risk mitigation and operational efficiency initiatives.”

Francisco Oliveira, Global Head of FX, Local Markets and Commodities, BNP Paribas recognized the need for settlement risk practices to evolve: “As global trading practices have evolved in the FX industry, so has the need for FX settlement risk mitigation. We look forward to our continued collaboration with CLS to help develop an alternative PvP model that works for a wider range of currencies and all market participants.”

Giles Page, Global Head of Linear FX from Citigroup said, “We welcome the work CLS is undertaking to tackle settlement risk and liquidity optimisation across the FX industry. While establishing an alternative PvP solution to address the expansion of FX settlement risk will take time, we are optimistic that the work currently underway will deliver significant industry-wide benefits, and we look forward to our continued collaboration with CLS to help develop a model that works across a broad number of currencies and market participants.”

Russell LaScala, Global Head of Foreign Exchange, Deutsche Bank highlighted, “Developing an alternative PvP solution will take time and will require collaboration between the industry and policymakers, but we are confident that as an industry we can succeed. We welcome the opportunity to collaborate with CLS and other market participants to explore potential solutions to further mitigate risk in the FX market.”

Robert Kim, Head of North America Currencies, J.P. Morgan said, “CLS has identified that a rise in emerging market currency trading has led to an increase in settlement risk. Through our involvement in the working group, we are supporting efforts to address this issue by exploring the development of an alternative PvP solution. As the established and proven settlement provider in the FX market, we see CLS as uniquely positioned to tackle the issue of settlement risk.”

Simon Manwaring, Global Head of Trading, NatWest Markets added, “While establishing an alternative PvP solution to address the expansion of FX settlement risk will take time, we are optimistic of the work currently underway. We welcome CLS’s active role in raising awareness of the issue and exploring potential solutions, and we recognise the importance of collaboration between the industry and policymakers to tackle this issue.”

Steve Forrest, Global Head FX Operations, UBS expressed their support for the initiative, “We are supportive of the work CLS is undertaking to address the rise in settlement risk through the development of an alternative PvP solution. We look forward to contributing to a strong partnership across the public and private side, similar to the one that created CLS in 2002, in order to build a successful cross-border solution that further mitigates FX settlement risk across global financial markets.”

Currently, CLS mitigates currency risk for 18 of the world's most actively traded currencies:

AUD  Australian dollar CAD  Canadian dollar DKK  Danish krone EUR  Euro HKD  Hong Kong dollar HUF  Hungarian forint ILS  Israeli new shekel JPY  Japanese yen MXN  Mexican peso NZD  New Zealand dollar NOK  Norwegian krone SGD  Singapore dollar ZAR  South African rand KRW  South Korean won SEK  Swedish krona CHF  Swiss franc GBP  Pound sterling USD  United States dollar

(1) Any PvP service arising from the pilot would be subject to all necessary approvals. (2) The amendments were approved at the Global Foreign Exchange Committee meeting on 28 June 2021.

In July 2021, CLS had an average daily volume of 4416 billion To see the monthly average daily volume that is settled via CLS in the above currencies, please click here.