cls group meeting sarah medlar relationship manager cls services istanbul 3 october 2003
TRANSCRIPT
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CLS GroupMeeting
Sarah Medlar
Relationship Manager CLS Services
Istanbul
3 October 2003
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Agenda
CLS – structure
CLS – how it works
CLS – how it’s working
CLS - next steps
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Structure
CLS Group Holdings - parent company
NY: CLS Bank International
Edge Act Bank - Lead Regulator the Federal Reserve Bank of New York
London: CLS Services Ltd.
Facilities Management/ Operations
Tokyo: Representative office
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EUR agentBank 1
Bank 1
USD agentBank 1
EUR agentBank 2
Bank 2
USD agentBank 2
MT 202
MT 202
USD funds
EUR funds
MT300
FX-Deal
USD
EUR
Payment/information flow pre CLS The Problem
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How the world worked before CLS
2 days PLUS
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Solving the Problem
1995 Allsopp report —Banks should review their internal control processes
—Industry groups should take collective action
—Central Bank measures to encourage risk reduction
led to industry initiative
1996 - Produced the CLS concept - Preferred Solution
July 1997 New company CLS Services Ltd.
Today 67 shareholders
2 September 2002 “GO LIVE”
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Overlapping RTGS systems
Asia/PacificAsia/Pacific
EuropeEurope
North AmericaNorth America
EuropeEurope
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CLS Bank holds RTGS settlement accounts with Central Banks
Holds a multi currency account for each Settlement Member
CLS Bank is a Multicurrency Bank
Reserve Bank of Australia
European European Central BankCentral Bank
Swiss National BankSwiss National BankUS Federal ReserveBank of JapanBank of Japan
Bank of EnglandBank of England Bank of CanadaBank of Canada
Monetary AuthorityMonetary Authorityof Singaporeof Singapore
DanmarksDanmarksNationalbankNationalbank
Norges Bank Sveriges RiksbankSveriges Riksbank
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How CLS Works
06:30 07:00 09:00 12:00
Submitting Instructions
Funding &settlement
Fundingcompletion
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Instructions submitted
Instructions submitted
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Settlement
Commences at 07.00 CET and is scheduled to complete at 09.00 CET.
Risk Management Tests applied to both Settlement Members.
Real-time exchange of currencies i.e. CLS Bank will not settle the trade unless both parties have the required funds available.
Exchange is effected with finality & irrevocability for Settlement Members over their accounts with CLS Bank
Haircut (volatility margin) applied to Settlement Member’s currency balances to minimise credit risk for CLS Bank.
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Risk Management Tests
CLS Bank applies three tests to each Settlement Member’s account before settling individual instructions or paying out funds
– Will both Settlement Members still be within the currency Short Position Limit?
– Will both Settlement Members still be within their Aggregate Short Position Limit?
– Will either Settlement Member’s account become negative after settlement?
No instructions will settle if any of the six tests fail.
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FundingCLS Central
Bank Accounts
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Pay-In Schedule
Multilateral net amount of Settlement Member’s obligations on a given value date.
Short position currencies to be paid in over a period of 5 hours (3 hours for Asia Pacific currencies) commencing at 07.00 CET.
Long position currencies to be paid out by CLS Bank.
Includes all matched Instructions submitted by the Settlement Member and any User Members & Customers (3rd Parties) that the Settlement Member is sponsoring.
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Short position limit € 0.5 Billion
09:00 - 10:00 - 11:00 -08:00 - 12:00CET
Pay-in
€ 1.0 Billion
Total paid in
€ 250 m€ 500 m
€ 166 m € 1000 m
Responding to the Pay-in Schedule
€ 167m € 667 m
€ 834 m€ 167m
€ 250 m€ 250 m
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Algorithm seeks to make recycle liquidity throughout the process within risk parameters
CLS Bank checks that a Settlement Member is entitled to receive funds, and that funds are available in the Central Bank account before paying out
If Member has unsettled instruction, its pay-out will be adjusted to retain sufficient value to settle irrespective of large intra-day FX move.
No amount will be paid-out that will cause the settlement member’s account to have an overall negative balance.
Pay-outs
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C
12:00 CET12:00 CET
Funding and Pay-out
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FX-DealUSD
EUR
MT 300
information
CLS Bank
USD a/c USD a/c
Bank 1 Bank 2
EUR a/c EUR a/c
InformationInput Inputinput input
CLS BankCLS Bank
CLS Settlement CLS Settlement Member BMember BCLS Settlement CLS Settlement
Member AMember A
Payment & information flow under CLS
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CLS Features – a summary
Linked to CB (RTGS)
Finality in PVP settlement
Multilateral Netted Funding
Real Time settlement and funds flow information
Intra-day Capability
Universal: Global Shareholders/Customers
Independent (Utility)
Not a Central Counterparty
Provides Crisis Management Support
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Other CLS shareholder benefits
CLS Bank membershipCLS Bank membership
Gateway to the provision Gateway to the provision of third party servicesof third party services
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Questions?
www.cls-group.com