CLS for investment managers 1
risk, delivering efficiency,
The market standard for FX settlement.
CLS for investment managers
CLS® Settlement1 eliminates the risk associated with CLS allows investment managers to proactively
foreign exchange settlement across time zones. manage settlement throughout the trade lifecycle in
real time. CLS member banks and fund custodians
The asset management industry has placed submit settlement instructions to CLS where they
increasing importance on FX trading in recent years. are matched promptly. Unmatched instructions are
Currency has become an asset class of it’s own easily identified and resolved. Matched instructions
in the pursuit of alpha. Investment in cross-border are then stored by CLS and processed for
securities has seen increasing interest and forward settlement on their scheduled settlement date. This
contracts are used to hedge currency exposure gives investment managers and their middle office
within a portfolio. Increasingly, FX trading with third staff a dramatically improved level of oversight over
parties is mandated and demands competitive the entire process and the time to resolve any issues
rates. These exchanges of currency carry exposure with their custodian or broker bank prior to the
to settlement risk. CLS was designed to provide a settlement date.
comprehensive settlement service that eliminates
this risk. Growing FX volumes have increased exposure to
settlement and operational risk. The need for more
A new way of thinking efficient processing is obvious given the growth in
At the operational level, investment managers are trading volumes. Increased regulatory requirements
often unaware of settlement issues until the day for best execution cover execution and post-trade
after the original settlement date or even later. These processes, not just price.
issues take time and effort to resolve. Meanwhile,
interest charges and compensation claims may CLS is the market standard for FX settlement and
accrue until the issue is cleared. Dealing with the the benefits don’t stop there.
concentration of trades with quarterly roll-over dates
is particularly arduous. There is a better way.
1 Offered by CLS Bank International (CLS Bank)
Elimination of settlement risk
Our implementation of CLS By providing a payment vs payment (PvP) settlement
process with legal finality, CLS Bank protects
was driven by the need to against loss of principal associated with FX trades.
In the event of settlement failure, neither of the
reduce our FX settlement risk instructions relating to for an FX trade will be settled
and the related funding is promptly returned to the
and our perception of CLS CLS Member.
as the final link in our STP Operational efficiency and cost savings
Users have achieved cost savings through
goals. The benefits in both operational efficiencies from:
areas have been tangible. • Enhanced straight-through-processing (STP);
Where we have been able
to use CLS, credit limits have
ceased to be an issue, and
the time saved on trade
failure investigations has
“ • Reduced number of settlements and associated
• Reduced errors, virtually no instances of
• More efficient allocation of monetary and
Active management of settlement process
been considerable. CLS-enabled broker banks or custodians are able
to send participants a report of trades whose
Newton Investment Management instructions have not matched in CLS. Any issues
Mohsin Siddiqi, Supervisor, arising can be actively managed in advance of
Trade Operations settlement rather than the cumbersome process of
resolving issues following a settlement failure.
CLS for investment managers 3
Minimised interest charges and Enhanced business opportunities
compensation claims Greater credit availability from settlement
Pre-settlement matching reduces risk of settlement risk elimination can lead to more trading
failures and, consequently, any resulting interest opportunities with a wider range of counterparties
compensation claims. and potentially higher value trades at the best price
than may have been available without
Improved liquidity management CLS Settlement.
The CLS settlement cycle includes same day
funding which minimises the time funds are Regulatory compliance with best execution
tied up to prepare for and complete settlement. CLS demonstrates to auditors and risk managers
Furthermore, settlement in CLS occurs on a gross, a sharply reduced exposure to settlement risk, and
individual PvP basis, but funding required for decreases the potential liability to claims and other
settlement is calculated on a multilateral netted basis settlement charges. Operational oversight and
which significantly reduces the number and amount control throughout the transaction life cycle can help
of payments that must be made to CLS. This netting organisations meet compliance with Sarbanes-Oxley
effect can also be beneficial in reducing the size of and equivalent legislation. Because CLS significantly
intra-day credit lines required. reduces the risk of settlement failures, trades with
broker banks can be executed with high assurance
Increase in reconciliation speed that the deal will settle accurately and on time.
Participants can minimise the number of payments Access to competitive pricing for FX demonstrates,
needed to settle a day’s trades which speeds up in part, best execution policy objectives in
cash reconciliation. accordance with MiFID.
Increased trading lines CLS is continually working with its Members
The elimination of settlement risk allows and the market to extend the current service to
counterparties to increase their trading capacity further currencies and enhance the capabilities
without increasing their settlement limits or, of the system by settling additional traded
alternatively, allows counterparties to reduce financial products.
settlement limits and maintain their levels of trading.
For more information, please visit
Who can use CLS?
CLS is available to the investment management Using CLS
community through CLS-enabled custodians and The investment management community can settle
broker banks. This community includes: via CLS if their custodian and FX broker bank have
the ability to settle via CLS. Upon the advice from
• Investment fund managers the fund manager, the custodian or third party
custodian, will submit the settlement instruction to
• Hedge funds CLS which will then match it with the instruction
• Pension funds received from the broker bank. This normally
happens within minutes. On settlement date, if the
• Overlay funds instructions meet CLS Bank settlement criteria,
settlement will occur or the related funding of the
• Third party custodians two payments for the FX trade will be returned.
For specific details on how to begin settling
instructions via CLS, please speak to a CLS-enabled
custodian or third party service provider.
39 Broadway, 29th Floor
New York, NY 10006
T +1 212 943 2290
F +1 212 363 6998
One Harbour Exchange Square
London, E14 9GE
T +44 (0) 20 7971 5700
F +44 (0) 20 7971 5729
Mitsui Ni-Goukan, 2-1-1
Chuo-ku, Tokyo 103-0022
T +81 (0) 3 3517 2791
F +81 (0) 3 3517 2796