“With CLS (Continuous Linked Settlement) due to go live in just one year’s time, Bank of America believes that most corporates, non-bank financial institutions and some banks still have to grasp fully the impact of the new FX settlement systems and understand the opportunities it may hold for them,” says a statement by the bank.
CLS represents an entirely different way of doing business, eliminating the risk of FX settlement failure through a mechanism that ensures that each leg of an FX transaction settles simultaneously.
Among the many benefits the bank cites are: reduced FX payment/settlement risk; easier confirmation matching and same day reconciliation; lower FX transaction costs through reduced numbers of payments; and a messaging capability.
“The discussion about CLS to date has been largely from the perspective of the banks involved. We think the greatest benefits of CLS will be for those companies with huge multi-currency flows such as oil companies, commodity traders, capital goods exporters and international financial institutions. On the other hand, CLS may have little relevance for some of the domestic retailers, however large,” says Simon Shephard, a senior vice president of Global Treasury Services.
“Because a crucial element of CLS is multi-currency payment versus payment within the system, CLS is likely to drive a shift from single currency clearers to multi-currency clearers,” adds Ed White, a senior vice president of Global Treasury Services.