FX market infrastructure specialist CLS has onboarded the first Japanese-domiciled funds to access its CLSSettlement service as third-party clients.
Fidelity International and The Master Trust Bank of Japan (MTBJ), a trust bank exclusively engaged in asset management, were the first Japanese-domiciled funds to settle FX transactions through the service.
Both Fidelity and MTBJ were supported by Brown Brothers Harriman (BBH), which acts as MTBJ’s custodian for non-Japanese securities and related currency movements outside of Japan.
“The ability to settle FX trades via CLS mitigates a large proportion of risk associated with currency trading, and it also adds another level of control and enhancement to our trading and risk management operations,” said Toshiya Oshima, head of asset management operations, Japan, Fidelity International.
The introduction of Japanese funds onto the FX settlement service follows a multi-year effort to onboard the Japanese buy-side community to CLSSettlement.
Japan’s markets regulator, the Financial Services Agency (FSA), has sought to promote payment-verses-payment (PvP) settlement and netting for FX market participants, and assist the industry in adopting CLSSettlement.
“This is an important milestone for the Japanese FX market and we look forward to continuing our work with our custody clients to facilitate the delivery of global risk mitigation standards to the asset management community in Japan,” added Sharon Maher, head of market services, BBH.
Industry-wide stakeholders of Japanese fund businesses have agreed with the FSA to adopt a two-phased approach to implementing CLSSettlement as third-party clients.
The initial phase, commencing in the Q4 2018 until Q1 2019, will focus on onboarding transactions executed by global asset managers and FX brokers using the existing market infrastructure.
Since early 2017, CLS has seen a rise in settlement activity from third-party participants including its first Japanese institutional investor, first corporate institution as well as the first Korean fund participants in CLSSettlement. Third-party participation globally accounts for approximately 22% of the total value settled in CLS.
“[This] reflects the rising trend of the buy-side becoming more actively involved in managing settlement risk, more aligned with global practices to accommodate shortening cycles in securities settlement, more transparent in funding commitment and benefiting from the liquidity efficiencies unique to the CLS system,” explained Rachel Hoey, head of Asia, CLS.