Design Link Settlement For Free

Continuous Linked Settlement (CLS) is a global initiative to reduce foreign exchange settlement risk by settling both legs of foreign exchange transactions simultaneously. Transactions are settled across the books of CLS Bank International (CLS Bank), a special purpose bank established to facilitate the CLS process.

CLS Group (for Continuous Linked Settlement), or simply CLS, is a specialized financial infrastructure group whose main entity is the New York-based CLS Bank.

CLS is an ongoing process of: submitting instructions - receiving payments of specified currencies from customers. funding - settling pairs of instructions that satisfy all criteria. execution - making pay-outs in specified currencies.

A good example is a USD/JPY transaction: Outside CLS, the seller settles his JPY on T-1, whilst the buyer settles the USD on T. With CLS, the two flows are simultaneously settled. This is the Payment versus Payment (PvP) principle.

A corporate FX transaction involves a bank, on behalf of their corporate client, paying for the currency it sold at an agreed rate to another bank and receiving a different currency in return for the funds being cleared and settled in the local clearings.

Settlement in CLS is final and irrevocable. Under CLS, transactions are settled on a gross basis, whereas funding is on a netted basis. The mechanism involves an ongoing process of submitting trade instructions, matching those trades, funding the deals, and then paying out to the participating accounts.

Continuous Linked Settlement (CLS) is an inter- national payment system which was launched in Sep- tember 2002 for the settlement of foreign exchange transactions. In the conventional settlement of a for- eign exchange transaction the exchange of the two currencies involved in the trade is not normally syn- chronous.

CLS currently settles in 15 currencies: Australian dollar, Canadian dollar, Danish krone, euro, Hong Kong dollar, Japanese yen, Korean won, New Zealand dollar, Norwegian krone, GB pound, Singapore dollar, South African rand, Swedish krona, Swiss franc and US dollar.

CLS provides a continuous mechanism for the simultaneous settlement of both sides of an FX deal. CLS operates as a Payment versus Payment (PvP) system. Time zone differences increase the risk of one party defaulting before both sides of the trade are settled.

The CLS Bank virtually eliminates the credit risk associated with settling foreign exchange transactions by providing a payment-versus-payment arrangement. After a decade-long effort by the international financial community, a new bank has been created to address risk in the settlement of foreign exchange transactions.