The number of fund managers settling payment instructions derived from foreign exchange deals through CLS Bank International (CLS Bank) now totals 338, says a spokeswoman for the foreign exchange settlement utility setup by 70 banks to eliminate Herstatt risk.
Since launching its Enhanced Fund FX service, CLS Bank says fund managers, pension funds, hedge funds, investment funds and asset management divisions of banks have all started to use CLS to settle payment instructions from foreign exchange deals relating to cross-border investment activity. Since the beginning of 2005, says CLS, there has been a 445% increase in fund manager participation in CLS.
One of the first to use the new service was Newton Investment Management, which initially saw using CLS as another means of enhancing its level of automation. Newton says using CLS has enabled it to reduce the number and cost of investigations covering missed payments; cut the charges applied by custodians to cover factors such as settlement risk and investigations; and mitigated settlement risk.
“Our implementation of CLS was driven by the need to reduce our FX settlement risk and our perception of CLS as the final link in our STP goals,” explains Mohsin Siddiqi, Supervisor, Trade Operations, at Newton. “The benefits in both areas have been tangible. 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 been considerable.”
CLS says Newton now plans to include CLS in its marketing and account opening documentation. In other words, it will ‘sell’ CLS as its preferred standard for FX settlement, citing the cost benefits to the firm.
Newton has also found itself able to deal with a broader range of counterparties. “We have been able to make more effective use of existing counterparties as a result of the absence of a need for settlement limits,” adds Siddiqi. “In the past it was not uncommon for us to ‘hit’ limits thereby requiring more time and energy to strike a trade.”
CLS says 643 financial institutions are now settling payment instructions derived from foreign exchange deals through CLS Bank. Of these, 58 are CLS Bank Members, and an additional 585 banks, brokers, funds and corporates access CLS Bank services as third party cliebts of CLS Bank Members.
Prior to the establishment of CLS Bank, foreign exchange settlement took place through correspondent banks.
CLS Bank is linked to the Real Time Gross Settlement (RTGS) systems operated by central banks in fifteen currencies: US Dollar, Euro, UK Sterling, Japanese Yen, Swiss Franc, Canadian Dollar, Australian Dollar, Swedish Krona, Danish Krone, Norwegian Krone, the Singapore Dollar, the Hong Kong Dollar, the New Zealand Dollar, the Korean Won and the South African Rand.