CLS has reported that the settled values of cross currency swaps submitted via the mechanism rose 27 per cent in Q2 2022 compared to the same period the year before.
CLS is a financial market infrastructure (FMI) delivering settlement, processing and data solutions across the global foreign exchange (FX) ecosystem.
While its official statement excluded the exact value for the volume submitted, it did emphasise how, due to the high value of the initial and final principal exchanges, cross-currency swaps do exhibit “significant settlement risk exposure.”
CLSSettlement enables participants to mitigate the settlement risk associated with these transactions. As cross currency swap flows are multilaterally netted against other FX transactions within the mechanism, daily funding requirements are “significantly reduced.”
The increase in traded values in cross-currency swaps submitted to CLSSettlement demonstrates industry commitment to the updated version of the FX Global Code’s settlement risk principles, which incorporate the wider use of payment-versus-payment (PvP) mechanisms where available.
“It’s clear that settlement members are realizing the benefits of submitting their cross currency swaps to CLSSettlement, driven partly by policymakers’ focus on increasing the adoption of PvP settlement,” explains Lisa Danino-Lewis, chief growth officer at CLS.
“In addition to mitigating settlement risk, firms sending these trades to CLSSettlement benefit from significantly lower funding costs due to the multilateral netting efficiencies CLS provides. On average, just one per cent net funding is required to achieve settlement, which frees up cash flow for other business operations.”