The volume of instructions submitted through CLS Bank will increase by 150 per cent by the middle of 2005. Or so says a new piece of research by TowerGroup.
The research, conducted amongst 40 of CLS Bank’s Settlement Member banks was undertaken independently by TowerGroup.
CLS Bank currently settles on average almost 70,000 payment instructions per day with an average gross value of approximately $US 800 billion, with over $US 50 trillion settled to date. According to the research, it is expected that the total volume will be 100,000 instructions per day by mid-2003 and 150,000 instructions per day by mid-2004 – growing to 176,000 instructions per day by the middle of 2005.
Settlement Members said they would most like to see more currencies settled through CLS Bank. Their next most desirable service enhancement would be automated Settlement, Standard Settlement Instructions and additional matching services.
The research found that the main motivation for joining CLS Bank was the reduction of settlement risk. Over 95% stated that this was an important or very important reason for their participation. This was followed by the avoidance of regulatory action (88%) and efficiency – to improve STP rates and reduce errors (65%).
Clear front office benefits were also identified. Over 50% of respondents reported that CLS had a positive impact on counter-party credit approval processes, with 16% stating that CLS had resulted in a change in trading practices. The main impact of CLS on Treasury practices was cited as decreased funding via multi-lateral netting, followed by better pre-settlement cash forecasts and, finally, the reduced use of “daylight credit” (where a payment system participant is allowed to overdraw against available account balances, so long as all accounts ultimately settle with positive balances by the end of that settlement session). The majority of parties (75%) claimed that since their implementation of CLS, the rate of failed trades had dropped to zero.
The main benefit perceived by Settlement Members from the provision of CLS third party settlement services was that it enables a strong customer relationship to be formed that may be leveraged in to other business areas (95% of respondents agreed that the third-party market shows excellent long-term potential to enhance customer relationships).
The key factors cited as driving the provision of third party services were the cost of establishing the service, the management of third party credit exposure and providing third parties with settlement finality.
Commenting on the research, Joseph De Feo, CEO of CLS Group and President and CEO of CLS Bank International, said: “In the seven months since the launch of the CLS Bank service, CLS has delivered real benefits to our Settlement Members and to the market. This research highlights many opportunities for both the front and back office in participating in CLS, and provides evidence that the benefits of CLS go far beyond risk reduction.”
Suzanne Labarge, Chairman of CLS Group and CLS Bank added: “We are encouraged by the potential volume growth predicted by our Settlement Members, and take this as evidence of their confidence in us, and what we have achieved so far. Over the coming years we aim to develop the service to continue to deliver a world-class settlement service that provides the market with ever increasing value.”
The director of the TowerGroup Global Payments practice, David Medeiros, who fielded the research explained: “This research has been jointly developed by CLS Bank and TowerGroup to provide CLS stakeholders with a real insight into CLS’ impact on the financial markets. The results will serve to educate the market, particularly other potential Settlement Members and third parties, about the benefits of being part of the CLS eco-system.”