e-FX Initiative Award – CLS

The first thing to make clear about this award is yes, we know this is, per se, a relaunch of a service. That said, we see the redesigned CLS Cleared FX Service as very much the right product at the right time – something that wasn’t the case in 2018 when it first opened.

FX, especially at the short end, has largely avoided the worst excesses of regulation, thanks in no small part to the role played by CLS in mitigating settlement risk, but equally there has been a rise in interest in (and regulatory demand for) increased clearing. How to bring the two together?

Capital costs are a much bigger issue for market participants than they were in 2018 and the FX swaps market, in particular, has eyed clearing for some years now, especially attracted by the capital benefits. The problem has been the lack of workflow benefits because they wanted to settle inside CLS, but the workflows ran parallel to each other. This is something that has been solved with the updated Cleared FX service.

There are still questions over the economics it has to be stressed, but as a functioning model, this ensures that a critical infrastructure in the FX market, CLS, and a growing presence, initially LCH ForexClear but others could join, can work together in a seamless fashion.

At a time when banks in particular (but a growing proportion of the buy side as well) are even more focused on the cost of doing business, the key to this service will be delivering the undoubted benefits it can, at a cost that doesn’t outweigh the regulatory benefits. If this succeeds, then CLS Cleared FX could be seen in years to come as a significant moment in the FX industry’s evolution.