Introduction To CLS 14-CLS-2015-Kos-Puth
Introduction To CLS 14-CLS-2015-Kos-Puth
Introduction To CLS 14-CLS-2015-Kos-Puth
May 2015
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Our core settlement service settles payment instructions for FX spot, FX forwards,
and FX swaps
Trade compression service through CLS Aggregation Services which reduces the
operational risk and costs associated with high-frequency trading
In/out swap service reduces the payment obligations to CLS and mitigates liquidity
pressures
Pre-CLS (2002)
Oversight Committee
76 shareholders
of 22 central banks*
SWIFT CLS service delivery and
development partners
67 57 liquidity
nostros providers
*CLS is subject to regulation and supervision by the Federal Reserve as well as cooperative oversight by the CLS Oversight Committee (OC) which
includes the 17 central banks of CLS-settled currencies as well as five other Eurosystem banks.
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CLS maintains accounts with all 17 central banks of the currencies settled, with access
to the relevant real time gross settlement (RTGS) systems
Settlement members each have a multicurrency account with CLS
Funding and pay-out of multilateral net positions is conducted using a daily, defined
schedule
Settlement members pay and receive funds through CLS’s central bank account in each
currency via their own accounts or nostro bank accounts
On each settlement date, CLS simultaneously settles each pair of matched instructions,
subject to satisfying three risk management tests
The settlement of the payment instructions and the associated payments are final and
irrevocable. Finality is one of the most important elements of the CLS system
Settlement members offer CLS access to their own customers (CLS third parties)
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Significant liquidity
savings
* Peak day:
• 17 December 2014, CLS settled a record of USD10.67 trillion in gross value
• Net funding was USD57 billion; a netting efficiency of 99.5%
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Third party activity accounts for approximately 22% of the total value and 16% of the
total volume settled in CLS
Funds,
35%
Banks,
56%
Funds,
97.4%
Corporates,
2%
Source: CLS (third party BICs) and funds settled through CLS in 2014 (Jan – Dec 2014)
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Each of the CLS Group legal entities is subject to the provisions contained in its
constitutional documents, as well as applicable laws and governance codes
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Duties of the Board of Directors are described in the CLS Group Articles of
Association, its Organizational Regulations and applicable laws and governance
codes
Supervision, oversight and strategy
Governance and compliance
Fiduciary duty to CLS Group
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Board Committees
Risk
Management
Nominating &
Governance
** Chairs Technology &
Operations Chairman
Business
Strategy
Audit &
Finance
Committee Committee Committee Committee Committee Committee
#
Rulebook * *
CCO CEO CIA
Executive Management
(Senior Management)
• Bus Risk • Legal • Talent Mgmt. & • Program • Operations • US • Acct & Report • Tokyo
• Op Risk • CLS Resourcing Service Delivery Service • Europe • Budget Controller Office
• Credit Risk Rulebook • Compensation • PMO & STAR Delivery • APAC • QAG • Hong
• Liquidity & Benefits Program Office • Relationship • Commercial Kong
Risk • HR Generalists • Solutions Management Office
• IT Security • Payroll Delivery
• Architecture &
Standards
Regulatory oversight
CLS’s oversight framework: regulated by the Federal Reserve; Oversight Committee of
22 central banks
In addition, CLS, as a systemically important financial market infrastructure, is subject to
the oversight and provisions by other market regulators, such as BIS and CPMI-IOSCO.
Inclusion of stakeholders
CLS regularly engages with its shareholders
CLS regularly engages with its settlement members and liquidity providers, including, but
not limited to, consultation processes for proposed changes to the CLS Bank Rule Book
CLS regularly engages with central banks (including exploration of additional currencies)
CLS participates in the public consultation process by providing comments on proposals
published by regulatory entities in various jurisdictions
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Cross currency interest rate swaps (“CCS”) not included in initial product set when CLS
went live
Add more products to expand the number and type of transactions that settle with
payment-versus-payment
Working to go live with settlement of initial and final principal exchanges of a cross
currency interest rate swap
Will not settle intermediate cash flows during life of the swap
Governance structure:
Board of Directors
> Strategy Committee of the full Board
> Provide overall direction and guidance
Working group with initial group of banks
Regulatory oversight and approval
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Compression of trades (also called “tear-ups”) has been used in derivative markets for
years
Interest rate swaps and credit default swaps
Reduce the outstanding number of trades while keeping the economic value
unchanged
Reduce gross exposures and reduce capital requirements
Working with another firm to offer compression services
CLS to provide trade info/data – other firm to run process of compression
Aiming to go live in second half of 2015
Governance structure:
Board of Directors
> Strategy Committee of the full Board
> Provide overall direction and guidance
Working group with initial group of banks
Regulatory oversight and approval
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Background:
Industry seeking to find a clearing solution for FX options
Threshold challenge has been to solve settlement risk in a scenario where a major
counterparty fails
CCPs and banks have worked with CLS and industry groups to find a solution
Exploring various options including:
Under one scenario, CLS to provide a separate CCP session that would leverage
CLS accounts at central banks to settle obligations of clearing members and CCP
CCP would maintain responsibility for default management
Working with CCPs to gauge demand for such a service
Goal: mitigate settlement risk and foster financial stability
Governance:
Board of Directors
> Strategy Committee
Industry groups, Clearing Members
Regulators and central banks
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CLS vision
strategy
initiatives
implementation
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