CLS Surveying Over Changing Settlement Cut-Off

Ahead of the US securities’ markets shift to T+1 settlement at the end of May 2024, CLS has completed a survey of FX market participants over the potential to move – and the impact of – an extension to the cut-off time for its settlement service.

The switch by the US – which is not being matched in Europe and most of Asia – is seen as making offshore participants in the US securities’ markets choose between greater funding risk, or increased FX settlement risk. With the move, it has been estimated that some Asian managers will have less than eight hours to confirm their exposures and execute their FX trades, thus pushing likely settlement outside the existing CLS window.

In the survey, CLS says it settles on average $6.5 trillion per day, but estimates that only 1% of that, $65 billion, may miss the current cut-off time for CLS Settlement of 6pm EST for next-day settlement. This number ignores, however, hedges in non-CLS currencies and from market participants without access to the service – China, in particular is a big investor in the US but the RMB is not supported by CLS.

CLS explains it is evaluating what, if anything, it can do to support the ecosystem and mitigate risks deriving from the switch to T+1 in North America and is polling opinion on

potential solutions to address this challenge. “We acknowledge that CLS Settlement operating timelines have remained largely unchanged since inception and that your current processes are well-established,” the letter states. “Therefore, it is essential for us to understand the impact of any potential changes on your organisational processes and your ability to meet the deadlines necessary for safe settlement.”

The survey asked 12 questions on various potential impacts, and sought opinions on whether the window should remain the same, or be extended by 30, 60 or 90 minutes. Banking sources spoken to by The Full FX provide anecdotal evidence that the at least some feedback is not to change the window, one senior operations staffer saying. “We think there are other solutions that can solve the problem that would create less upheaval to the broader business.”