Markit and CLS Group (CLS), a leading provider of risk mitigation and operational services for the global foreign exchange (FX) market, has announced the launch of a new FX settlement service for the cross currency swaps market.
Cross currency swap trades expose counterparties to significant settlement risk due to the high value of initial and final principal exchanges. The service provides a streamlined process for the payments related to these trades by incorporating them into CLS’s existing unique payment-versus-payment (PvP) settlement service. CLS receives settlement instructions from cross currency swaps electronically confirmed using MarkitSERV, the OTC derivatives trade processing service from Markit.
The new service, developed in consultation with leading financial institutions in the cross currency swaps market, creates greater operational efficiencies and, through multilateral netting, reduces liquidity and payment demands across the industry.
Charles J Bristow, co head of Global Rates Trading and head of Funding for Macro Markets, at JP Morgan, comments: “Settlement remains a critical risk for the market to manage, particularly across products where the exposure to FX settlement can be significant. This new service developed by CLS and Markit to settle cross currency swaps is an important step which will help to mitigate settlement based risks.”
Andrew Hinchliff, executive general manager, Global Markets, IB&M division, at Commonwealth Bank of Australia, comments: “Demand for more effective post-trade clearing and settlement services from regulatory bodies and market participants has never been more acute. The extension of CLS’s settlement service to the growing cross currency swaps market is a welcome addition that will mitigate systemic risk and reduce counterparty exposure across OTC markets.”
David Puth, chief executive officer of CLS, comments: “As part of our ongoing efforts to reduce settlement risk for our members, we are continuously looking to enhance the portfolio of FX products that can be launched on our platform. This new service, developed with Markit and our global community of settlement members is another example of the industry working together to introduce innovative ways to reduce systemic risk in the global FX and OTC derivatives market.”
Brad Levy, managing director and head of Markit’s Processing division, said: “Working with CLS to streamline trade settlement for cross currency swaps demonstrates how service providers can work together to make swaps market operations more efficient. This service brings settlement to the diverse community of market infrastructure providers and OTC derivatives end users connected by the MarkitSERV network.”
