CLS Sees Increased Post-T+1 FX Volumes

In its latest update on FX volumes post the switch to T+1 in North American securities market at the end of May, CLS continues to paint an optimistic picture, albeit one that should, perhaps, be viewed through the prism of wider market activity.

CLS says that after the T+1 implementation, the average daily settlement values on CLS Settlement rose from $6.98 trillion to $7.6 trillion – an 8.5% increase. It adds that year-to-date, to the end of September, average daily values settled have reached $7.18 trillion, “reflecting no negative impact to CLS Settlement after the transition”.

The settlement service provider adds that submissions from funds have also increased and argues, “This underscores the readiness of both the buy and sell sides ahead of the move, with CLS Settlement continuing to provide the stability, risk mitigation and efficiency necessary for the smooth functioning of the FX market.”

The update does tally with CLS’s observation before the transition that the potential impact on its service would be limited, however a larger data sample will probably be necessary before any definitive conclusions can be reached. While CLS volumes have risen, by around 8% year-on-year in the first nine months, data from other sources suggests this is under-performing the wider FX market’s growth over the same period.

Looking at volume data from LSEG FX, 360T and FXSpotStream – all of whom report volumes across all FX products – the cumulative volume growth has exceeded that of CLS, with a 13.9% volume increase across the first three quarters of 2024 compared to the same period in 2023.

There have clearly been volume spiks in spot markets in recent months, however the larger growth across LSEG FX and 360T in particular, appears to have come from non-spot – CLS’ largest product set. Sources agree that the transition to T+1 has gone as smoothly as hoped, however some still see elements of funds not being able to provide accurate hedging data in time, and who are still “guess hedging” with a smaller adjustment trade at a later date.

Few believe CLS needs to change its operating procedures or hours, as the service predicted before the T+1 transition, however as one senior banking source admits, “It’s still early days and they would be wise to keep a close eye on things.”