CLS welcomes the FX Global Code changes on payment-versus-payment
By Joy Dumasia
CLS, a financial market infrastructure delivering settlement, processing and data solutions across the global FX ecosystem, welcomes changes to the FX Global Code (the Code). This places greater emphasis on using payment-versus-payment (PvP) settlement mechanisms where available and provides more detailed guidance on settlement risk management where PvP settlement is not used.
The specific changes to the Code concerning the mitigation of FX settlement risk and best practices in post-trade processing are:
Principle 35: strengthening the importance of PvP settlement to mitigate settlement risk where possible and the use of automated settlement netting systems where it is not.
Principle 50: more detailed guidance on the measurement, monitoring and control of settlement risk where PvP settlement is not available, with a greater emphasis on the confirmation process of bilateral netting and the agreement of predetermined cut-off points.
CLSNet is a standardized, automated bilateral netting service for FX trades settling outside the CLSSettlement service in approximately 120 currencies and supports Principle 35 and Principle 50 of the Code. All transactions sent to CLSNet are validated and matched up to the predetermined cut-off times between counterparties for each currency.
Marc Bayle de Jessé, CEO of CLS, said: “We fully support the changes to the Code as it will encourage FX market participants to explore ways to mitigate risk further and reduce operational costs by adopting a best practice approach to FX settlement risk management and netting. In support of these changes to the Code, and in order to make access to PvP settlement mechanisms more widely available, we are working with the market to evaluate potential PvP solutions for currencies that are currently unable to settle in CLSSettlement. In late 2020, we established an industry working group and are actively exploring opportunities with the market to mitigate settlement risk further and unlock liquidity.”
Recently, IBS Intelligence reported that Finastra today announced a partnership with CLS in a bid to offer its customers access to CLS’ bilateral payment netting calculation service, CLSNet. The new collaboration is expected to accelerate Finastra’s Marketplace strategy and enable its customers to access CLSNet without additional development.
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