CLS PROFILE: the benefits of membership

CLS NEWS

Why did you decide to join CLS?

As part of our straight-through processing (STP) project, we were looking at various foreign exchange netting options and then became aware of CLS, which we researched and found to be the most appropriate solution to match our criteria.

What criteria did you use to select your settlement members?

As all our broker banks were already CLS settlement members, we felt it would simply be a matter of time before all the major custodians also became members. This way we are not tied to any one institution for CLS settlement.

Currently, Northern Trust and Bank of Ireland are the only two custodian banks who we settle through CLS with, but we would anticipate settling through our other custodian banks in the near future.

How much of an issue was cost?

Cost was not a major issue as internally the development cost was covered by our STP project and we were assured by our then custodian that there would be no extra charge for using CLS.

What benefits have you seen from using CLS?

Simply, trades submitted to CLS never fail. This means that staff who were previously spending time dealing with investigations and interest claims can now spend more time on project work and management reporting.

Even with just two of our custodians currently providing CLS, we have seen the benefit.

What difficulties did you face when establishing the relationship with CLS and how did you overcome them?

There were no problems with the implementation at all. I would say it has been the smoothest implementation of any system we have introduced.

We had the appropriate straight-through processing technology in place and it was just a matter of adding rules to our existing database.

How is CLS changing the market?

The market does look favourably at CLS-enabled investment managers, and this is reflected in the fact that credit limits are no longer an issue when we settle via CLS. As custodian take-up of CLS increases, we will be able to transact a higher volume of our FX trades with our CLS-enabled brokers without any risk of trade failure, and this flexibility will ensure we are always able to meet the 'best execution' guidelines from our regulators.

What is your daily average total turnover for FX, and what proportion of that is eligible for settlement on CLS?

Our average daily turnover is £75 million, and currently only 3% is eligible for CLS. We are encouraging our other custodians to provide CLS settlement as soon as possible, and other clients are doing the same.

How much of your forex volume is settled through CLS? How much do you expect to settle through CLS by the end of next year?

At the moment, 7%. We expect this to rise to 60% by the end of this year and 90% by Q3 next year if the custodians' CLS projects go as planned.

What is the next currency you would like to see join CLS?

We'd like to see the Thai baht on board, as we trade a fair amount, and non-receipts here can be complicated to resolve.

What products would you like to see eligible for CLS and why?

Third-party money market trades would be useful, as this is still a manual process for us. Also, cash movements on derivative products for the same reason.

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