2003年-ECB欧洲央行_CLS_-_purpose_concept_and_implications_14页_210kb

CLS - Purpose, Concept and Implications

Core Content

Continuous Linked Settlement (CLS) is a multi-currency clearing and settlement system designed to reduce FX settlement risk. Launched on 9 September 2002, CLS settles transactions in seven major currencies: the US dollar, the euro, the Japanese yen, the pound sterling, the Swiss franc, the Australian dollar, and the Canadian dollar. It is a response to the G10 central banks' objective of mitigating FX settlement risk, which is defined as the risk that one party to an FX transaction will pay the currency it sold but not receive the currency it bought. This risk is often referred to as "Herstatt risk" after the 1974 collapse of Bankhaus Herstatt, which exposed counterparties to substantial losses due to unsynchronised settlement.

CLS operates on a payment versus payment (PVP) basis, ensuring that both sides of an FX transaction are settled simultaneously. This eliminates the exposure of settlement members to liquidity and credit risk, as the settlement process is synchronised and CLS acts as a trusted third party, not becoming a counterparty to the transactions.

Main Points

1. Purpose and Background

• CLS was developed by the banking industry to address FX settlement risk as part of the G10 central banks' strategy.
• FX settlement risk is significant due to the unsynchronised nature of cross-border payments and the potential for counterparty default.
• The system is designed to reduce this risk by ensuring that both legs of a transaction are settled at the same time.

2. CLS System Design

• CLS is structured as a single-purpose bank, CLS Bank, which only engages in FX settlement activities.
• Settlement members and user members can participate in the system, with settlement members maintaining accounts in all eligible currencies.
• The system allows for gross settlement of individual FX trades but provides a netting effect on the funding of positions.

3. Risk Management Features

• CLS enforces short position limits for each currency to ensure liquidity is available in case of default.
• The aggregate short position limit is based on the settlement member's Tier I capital and credit rating.
• Settlement members must maintain a net positive account value with CLS at all times.
• Haircuts are applied to collateral to protect against market risk.

4. Daily Operational Timeline

• CLS has a strict daily timeline with predetermined deadlines for funding and settlement.
• Settlement members must make funding payments by specific times (e.g., 9 a.m. CET for USD).
• Pay-outs occur after funding is confirmed, with priority given to currencies whose RTGS systems close first.

5. Liquidity Management and Participants

• Nostro agents and liquidity providers play a critical role in ensuring the system can handle unexpected liquidity demands.
• Nostro agents provide services to settlement members and must have sufficient liquidity and operational robustness.
• Liquidity providers are only called in if a settlement member fails to fund its short positions, and they must respond quickly to CLS requests.
• The ECB requires euro-related nostro agents and liquidity providers to have direct access to TARGET and unrestricted access to Eurosystem intraday and overnight credit.

6. In/Out Swaps and Alternatives

• In/out swaps allow settlement members to reduce liquidity demands by swapping CLS positions with other members outside of CLS.
• These swaps re-introduce FX settlement risk on the outside leg and are expected to be phased out as banks become more familiar with CLS.
• Some settlement members use alternative methods, such as posting positions on a Reuters screen, to find solutions for liquidity management.

Key Implications

• CLS has significantly reduced FX settlement risk by synchronising payments and acting as a trusted third party.
• The system has impacted market infrastructures, particularly the euro, where large-value payment volumes may decrease.
• CLS has introduced new challenges in liquidity management due to its strict daily timeline.
• It has also sparked discussions about the potential development of an intraday money market and two-tier pricing for FX trades, though these remain speculative.

Summary of Impact

• Reduction of FX Settlement Risk: CLS effectively eliminates this risk by synchronising settlement and ensuring both legs of a transaction are settled simultaneously.
• Operational Challenges: The system requires strict adherence to a daily timeline and poses liquidity management challenges for settlement members.
• Role of Central Banks: Central banks have supported the development of CLS and improved national payment systems to align with its requirements.
• Market Infrastructure Changes: The system has led to changes in the way FX transactions are processed, particularly in the euro area.
• Liquidity and Collateral Management: The system is built on a robust liquidity and collateral framework, with specific requirements for euro-related participants.

Conclusion

CLS represents a significant innovation in the FX settlement process, offering a more efficient and secure way to handle cross-border transactions. By synchronising settlements and implementing strict risk management procedures, it addresses the systemic risks associated with traditional FX settlement methods. However, its implementation has also introduced new operational and liquidity challenges, which require careful management by participants and support from central banks.