management institutions can now access the CLS system in Korea for the first
time via CLS third-party service provider, HSBC.
announcement builds on the earlier adoption of CLS participation in Korea by
other non-bank financial institutions (NBFIs), including a number of leading
securities brokers. Third-party participation globally accounts for approximately
22% of the total value settled in CLS and there was a 12% increase in the
number of third-party participants using the service in the Asia Pacific region
statement issued today CLS claims that the Korean FX market has evolved
significantly in recent years and that a core catalyst has been the
transformative increase in participation from investment managers and other
NBFIs, as well as the diversification of investment towards foreign assets – a
trend which is predicted to continue over the coming years.
result, managing counterparty exposure and mitigating settlement risk have
become increasingly critical for market participants.
of third-party participation by NBFIs is a key part of our strategy to mitigate
settlement risk, underpin financial stability and improve trading efficiencies
for the global currency market,” says Rachael Hoey, head of Asia at CLS. “The
growth in fund manager participation in CLS reflects the importance of the buy
side in the FX market.
“We expect NBFIs
who join CLS to benefit on multiple levels,” she continues. “These include more
automated processes and streamlined trading operations, as well as liquidity
benefits from netting that lower transaction costs while boosting trading and
counterparty limit management efficiencies that support business growth
opportunities. All of these are important during normal operations but
particularly critical during periods of stress or volatility.”
An, head of trustee and custodian services at HSBC Korea, adds: “HSBC Korea
successfully facilitated Korea’s first international fund management
institution to join CLS in Seoul, Korea. The ability for fund management
institutions to settle FX trades via CLS brings Korea in line with other
leading financial centers around the world.
mitigation of settlement risk is an increasingly important part of an
investment manager’s fiduciary duties, with which HSBC Korea and our global and
local custodians must comply to secure our client assets,” he adds. “With
growing global investment and foreign asset allocation taking place, HSBC Korea
is expecting to work with other clients to use CLS in Korea to reduce FX
settlement risk and strengthen Korea’s position as a regional trading hub.”