In this article, We learn about "Continuous Linked Settlement (CLS)".Let's Go!
CLS, or Continuous Linked Settlement, is a cross-border payment system for foreign exchange transaction settlement that eliminates settlement risk.
Standard Forex transactions are subject to settlement risk.
Because the exchange of the two currencies involved is not simultaneous, the party selling the currency before receiving the currency purchased from the counterparty faces certain risks.
CLS eliminates settlement risk by using a payment versus payment mechanism (“PVP”). This means you only get paid if you pay .
On settlement date, each counterparty to the trade pays CLS for the currency it sold.
CLS only pays out bought currency after receiving the sold currency.
In effect, CLS acts as a trusted third party during the settlement process.
It should be noted that CLS is not a central counterparty, and transactions are still conducted between two counterparties.
CLS system is operated by CLS Bank International, which specializes in settlement of foreign exchange transactions.
CLS Bank was established in 2002 and is owned by the world's largest banks.
CLS Bank (CLS) is a limited purpose bank for the settlement of foreign exchange, headquartered in New York, with principal operations in London.
Although CLS Bank is headquartered in New York, it has accounts in every country in which transactions are settled in currencies.
All transactions are settled through the bank within a 5-hour window every working day.
Today, CLS provides settlement of payment instructions in 18 currencies to over 70 settlement members and over 25,000 third-party clients.
CLS clears an average of $5.3 trillion payments every day.
Regulated by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York.
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