HSBC Joins CLS and IHS Markit Cross Currency Swaps Service

HSBC has become the ninth settlement member of CLS and IHS Markit’s cross-currency swaps service, a move the firms say supports the call from policymakers and regulators to increase payment-versus-payment (PvP) adoption across the industry in order to mitigate settlement risk.

They add there has been “a clear trend” in FX markets in recent years – the rise in global trading of currencies that do not have PvP settlement mechanisms. To address this issue, international standard setting bodies, such as the CPMI and the Global Foreign Exchange Committee, are exploring ways to increase the level of PvP settlement in the FX market.

The service is an extension of CLS’s PvP settlement service and uses the MarkitServ trade confirmation platform to allow CLS Settlement members to send their cross-currency swaps for settlement. The cross-currency swap flows are multilaterally netted against all other FX transactions in CLS Settlement, resulting in what the firms say is a “significant reduction” in daily funding requirements for clients as well as liquidity optimisation benefits across the industry.

“As more settlement members join the service, they will benefit from significant operational and funding efficiencies,” says Lisa Danino-Lewis, global head of sales at CLS. “CLS has long advocated for greater PvP adoption to mitigate FX settlement risk, and by increasing cross-currency swap flows to CLS Settlement, HSBC’s participation will help to achieve that.”

Peter Altero, global head of rates business development at IHS Markit adds, “The cross-currency swaps settlement service is a good example of how service providers can work together to create a more efficient FX settlement system. The addition of HSBC to the community of global financial institutions connected by the MarkitSERV network for cross-currency swap settlement shows that the industry supports such collaborations, while at the same time reaping cost benefits and mitigating risk.”