A process by which number of the world’s largest banks manage settlement of foreign exchange amongst themselves (and their customers and other third-parties) is known as continuous Linked Settlement. CLS Group Holdings AG and its subsidiary companies manage this process and it include a settlement bank regulated by the Federal Reserve Board of New York. In 1997 the formation of Group takes place and since 2002 the settlement system has been operational. As of February 2009 there had been a participation of 73 shareholders and 62 settlement members as well as 4,576 Third Party participants (411 banks, corporate and non-bank financial institutions and 4,165 investment funds) in the system.
Since its operations were initiated, between major banks CLS has rapidly become the market-standard for foreign exchange settlement, and as of 17 September 2008, 1,554,166 instructions a day in 17 currencies were settled by it and that represents some 95% of global foreign exchange trading and with a gross value of US$8.6 trillion or about 1,300 U.S. dollars on that day for every person on the Earth. This new record had broken the previous record of about US$ 1,148,000 million, and for the first time in history the volume of payment instructions settled in one day has exceeded 1.5 million.
The settlement of gross-value instructions with multi-lateral net funding is a key feature of CLS. On average, we can say that the CLS netting efficiency is in the region of 95%; which means that each trillion dollars of gross value settled might require aggregate pay-ins of just $50 billion.
Transactions on Payment versus Payment Basis (PVP)
Transactions are settled down by CLS on a payment versus payment basis, and that is also known as PVP. Whenever there is a settlement of a foreign exchange trade, each of the two parties to the trade pays out (sells) one currency and receives (buys) a different currency; it is ensured by PVP that these payments and receipts occur simultaneously. If there is no PVP then there is a (minor, but with potentially devastating financial consequences) chance that one or more parties could sell away funds to another institution but do not buy any reciprocal funds that are due on them (generally for reasons of credit-related default) this is what we call as settlement risk, or Herstatt risk.
An additional benefit that is provided by the CLS system is the increased straight through processing capabilities.
Currencies
CLS currently trades the following currencies:
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In Australia the currency is Australian dollar and its symbol is AUD
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In Canada the currency is Canadian dollar and its symbol is CAD
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In Denmark the currency is Danish krone and its symbol is DKK
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In Eurozone the currency is Euro and its symbol is EUR
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In Hong Kong the currency is Hong Kong dollar and its symbol is HKD
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In Israel the currency is Israeli Shekel and its symbol is ILS
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In Japan the currency is Japanese yen and its symbol is JPY
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In Mexico the currency is Mexican Peso and its symbol is MXN
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In New Zealand the currency is New Zealand dollar and its symbol is NZD
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In Norway the currency is Norwegian krone and its symbol is NOK
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In Singapore the currency is Singapore dollar and its symbol is SGD
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In South Africa the currency is South African rand and its symbol is ZAR
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In South Korea the currency is South Korean won and its symbol is KRW
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In Sweden the currency is Swedish krona and its symbol is SEK
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In Switzerland the currency is Swiss franc and its symbol is CHF
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In United Kingdom the currency is Pound sterling and its symbol is GBP
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In United States the currency is United States dollar and its symbol is USD
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Posted by R. MAK. in Currency Trade, Forex Basics, Forex Market · 0 Comment
