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investment managers

  1. 1. ™ CLS for investment managers 1 investment managers
  2. 2. 2 Eliminating settlement risk, delivering efficiency, growing business opportunities The market standard for FX settlement.
  3. 3. ® 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)
  4. 4. 2 Benefits “ 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 transaction costs; • Reduced errors, virtually no instances of settlement failure; • More efficient allocation of monetary and physical resources. 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.
  5. 5. 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
  6. 6. 4 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. Settlement instruction Investment manager Investment fund Relationship Deal transacted Relationship Member B (Custodian) Instruction Member A CLS Bank • Matching • Confirmation • Settlement Instruction
  7. 7. CLS for investment managers 5 Implementation “ You must have a CLS enabled custodian and broker bank(s) to settle FX trades in CLS. CLS adds another level of The following steps are offered as a guide to implementing CLS: control to our trading process 1. Establish whether your banks can offer and has significantly reduced CLS Settlement. what we need to do 2. Visit for more detailed information and a list of CLS custodians offering CLS Settlement. 3. Ensure that your broker bank have access to CLS. Contact your custodians and FX broker banks to review what you will need to implement CLS. It has been reported that the appropriate system changes have taken as little as two weeks. manually which is fantastic. CLS is also risk-reducing for our clients as the potential for settlement errors and the cost of them “ CLS complies with industry standards and was is eliminated. designed to require minimal system changes. It uses existing SWIFT message types, existing fund ID Record Currency Management standards and SWIFT FIN fund ID structure. Joel Sleigh, Director of Operations The expenditure on back office modifications is different for every firm; however, the potential savings from settling via CLS are easily identified. The Dial device is a trademark of CLS UK Intermediate Holdings Ltd. CLS and the CLS logo are registered trademarks of CLS UK Intermediate Holdings Ltd. © 2008 CLS UK Intermediate Holdings Ltd.
  8. 8. CLS offices United States 39 Broadway, 29th Floor New York, NY 10006 USA T +1 212 943 2290 F +1 212 363 6998 United Kingdom Exchange Tower One Harbour Exchange Square London, E14 9GE UK T +44 (0) 20 7971 5700 F +44 (0) 20 7971 5729 Japan Mitsui Ni-Goukan, 2-1-1 Nihonbashi Muromachi Chuo-ku, Tokyo 103-0022 Japan T +81 (0) 3 3517 2791 F +81 (0) 3 3517 2796 4504