CLS Sees Cross Currency Swap Growth
Posted by Colin Lambert. Last updated: July 25, 2022
CLS says the settled values of cross currency swaps submitted to the mechanism rose 27% in Q2 2022 compared to the same period last year.
While CLS does not provide a notional value for the volume submitted, it says that cross currency swaps exhibit “significant” settlement risk exposure due to the high value of the initial and final principal exchanges. It adds by using CLS Settlement, participants can mitigate the settlement risk associated with these transactions and, because cross currency swap flows are multilaterally netted against other FX transactions within CLS Settlement, users also benefit from a significant reduction in daily funding requirements.
CLS says increase in traded values in cross currency swaps submitted demonstrates industry commitment to the updated version of the FX Global Code’s settlement risk principles, including greater emphasis on the use of PvP mechanisms where available.
“It is clear that settlement members are realising the benefits of submitting their cross currency swaps to CLS Settlement, driven partly by policymakers’ focus on increasing the adoption of PvP settlement,” says Lisa Danino-Lewis, chief growth officer, CLS. “In addition to mitigating settlement risk, firms sending these trades to CLS Settlement benefit from significantly lower funding costs due to the multilateral netting efficiencies CLS provides. On average, just 1% net funding is required to achieve settlement, which frees up cash flow for other business operations.”