CLS Welcomes Code Changes

CLS has welcomed the changes to the FX Global Code, specifically those which place greater emphasis on the use of payment-versus-payment (PvP) settlement mechanisms where available. Unsurprisingly, given the changes promote the CLS model, the utility also says it welcomes the provision of more detailed guidance on the management of settlement risk where PvP settlement is not used.

The Global Foreign Exchange Committee made changes to Principles 35 and 50 specifically related to, in the case of the former it strengthened the importance of PvP settlement to mitigate settlement risk where possible, and the use of automated settlement netting systems where it is not. For Principle 50, it provided more detailed guidance on the measurement, monitoring and control of settlement risk where PvP settlement is not available, with a greater emphasis on the confirmation process of bilateral netting and the agreement of predetermined cut-off points.

“We fully support the changes to the Code as it will encourage FX market participants to explore ways to mitigate risk further and reduce operational costs by adopting a best practice approach to FX settlement risk management and netting,” says Marc Bayle de Jessé, CEO of CLS. “In support of these changes to the Code, and in order to make access to PvP settlement mechanisms more widely available, we are working with the market to evaluate potential PvP solutions for currencies that are currently unable to settle in CLSSettlement. In late 2020, we established an industry working group and are actively exploring opportunities with the market to mitigate settlement risk further and unlock liquidity.

“We are also analysing trade data from our settlement members to contribute to the design of any new solution and further the industry’s understanding of market participants’ settlement practices,” he continues. “We look forward to updating the GFXC and its members on these initiatives in due course.”