CLS Welcomes FX Global Code Changes

As is probably to be expected given its major focus on improving settlement procedures, the latest iteration of the FX Global Code has been welcomed by FX settlement service provider CLS, especially the introduction of a “risk waterfall” in Principle 35.

Commenting on the introduction of a risk hierarchy, CLS observes that payment-versus-payment (PvP) settlement mechanisms are at the top, followed by a cascade of methods for reducing FX settlement risk, from the netting of FX obligations to minimising gross bilateral settlement, which sits in the final stage of the risk waterfall. It also cites the updated Code as stating (where practicable), “gross bilateral settlement should be minimised”.

CLS also notes that the recommendation that market participants should minimise both the size and duration of risk outside of PvP as much is as practicable, encourages the use of netting systems such as its CLS Net.

“We welcome the the Code’s continued emphasis on mitigating FX settlement risk via PvP mechanisms and automated netting solutions, using the ‘risk waterfall’ concept as a best practice approach,” says Marc Bayle de Jessé, CEO of CLS. “The principles outlined in the Code are critical for reducing systemic risk while enhancing resilience and efficiency in the global FX market.

“We are committed to expanding access to PvP settlement solutions and promoting best practices as outlined in the Code,” he continues. “Significant growth in CLSNet is bringing risk mitigation and operational efficiency to more and more currency flows outside of CLSSettlement.

“By collaborating with the market and leveraging insights from our market data, we aim to enhance the understanding of settlement practices and ensure that the FX ecosystem is well-equipped to tackle emerging challenges,” he concludes. “We will continue to work closely with the GFXC to advance these objectives and support adoption of the updated Code.”