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CLS to Expand Currencies For Its New Netting Service

CLS has
announced plans to expand its bilateral payment netting service, due to launch
in 2018, to support more than 140 currencies at launch as opposed to the 24
currencies initially planned.

In a release
issued today CLS says that this decision was taken in response to demand from
market participants.

“From the
very beginning we had a vision of the service ultimately being currency
agnostic and we intended to launch the service with six of the non-CLS
currencies that are the most highly traded, viewing this as the most immediate
value-add for potential clients,” Adam Levine, executive director, corporate
strategy and development at CLS, tells Profit
& Loss
.

He adds:
“We very much intended to add currencies at a rapid pace on a rolling basis
once we launched the service, but as we continued to engage with clients it
became clear that they understood the value-add of CLSNet and that vision of a
currency agnostic service and all these currencies was something that resonated
with them and they wanted that as soon as possible. It’s not a change of the
vision for the service, it’s just that we were able to accommodate this
customer demand.”

Coverage
will now include all currencies associated with jurisdictions not on an
official black/grey or sanctions list that would prevent CLS from conducting
business with that jurisdiction.

CLSNet is a
standardised, automated bilateral payment netting service for FX trades that
are settling outside the CLS settlement service. The launch of the planned
service was announced in September
2016
.

The first
phase, planned for 2018, will allow participants to submit FX instructions for
six FX products – spot, forwards, swaps tom/next, same day and NDFs – and more
than 140 currencies through traditional Swift channels or distributed ledger
technology (DLT).

Levine says
that there is also potential for CLS to expand the service for other products
and potentially even other asset classes.

CLS made
headlines when it first announced the planned launch of CLSNet, partially
because of its proposed use of DLT as an option for the service, but Tom
Zschach, chief information officer at CLS, emphasises that the firm views the
adoption of this technology as “more of an evolution than a revolution”.

He adds:
“We think the timetable for mass adoption [of DLT] is probably measured in
years, not months, and we think that based on our risk appetite, and the risk
appetite of our board and the risk appetite of regulators that this is a good
place to start.”

Regarding
the hurdles that CLS needs to overcome to meet the phase one go-live date in
2018, Levine says that the focus for the firm right now is two-fold.

Firstly, he
says that CLS is continuing to work with the 21 committed participants for this
initial go-live date to make sure that it hits the proposed deadlines. And
secondly, according to Levine, the firm is continuing its efforts to engage
with market participants to build on this number of committed participants
amongst both the buy and sell side.

Focusing
specifically on the challenges relating to getting the DLT aspect of the
service ready, Zschach points out that there is a big jump to be made between
building the technology and actually being able to implement it within a key
piece of market infrastructure provider such as CLS.

“There’s a
huge leap between building a proof of concept and putting functionality into a
piece of software – including a ledger – and taking that into production and
running it in a way that people expect form CLS, with all the security and the
operational resiliency that entails,” he says.

galen@profit-loss.com

Twitter
@Galen_Stops

Twitter @Profit_and_Loss

Colin Lambert

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