CLS Develops Settlement Service for FX Derivatives

CLS will partner with LCH.Clearnet to develop a settlement service for cleared foreign exchange derivatives.

Set to launch in 2016 it will be open to all clearing houses and apply to a range of cleared FX products, including OTC and exchange-traded FX options, futures and cross-currency swaps.

The service will provide a specialized payment-versus-payment (PvP) settlement in all CLS-eligible currencies and will operate separately from CLS’s main PvP settlement service.

In the event of a clearing member failure, payment netting will substantially reduce the size of the participating CCP’s potential liquidity shortfall, mitigating systemic liquidity disruption.

“We have been working with the CCP community and other industry stakeholders to design and model the most effective way to mitigate settlement risk for cleared FX products,” says David Puth, CEO, CLS.

“Settlement risk is one of the most significant risks in FX. Our priority is to mitigate this risk, while increasing operational efficiency through our technology and connectivity.”