What is a continuous interconnected settlement?
continuous interconnected settlement is the process of settling foreign exchange transactions to cooperate between the main banks to reduce the risk of settlement. Since 2002, CLS Group Holdings, or CLS, an entity owned by some of the world's leading financial institutions eliminates the risk of settlement for the transactions it processes, through the payment-versus payment mechanism, which provides the current payment of both currencies in the exchange transaction. All transactions processed in the system are networked, leading to a substantial reduction in the number of payments per bank and the costs of completing completed payments. If both payments do not happen at the same time, there is a risk that one party will complete the currency payment and the other party will not do as if it could happen if one of the banks could become a transaction default before the transaction. A continuous interconnected settlement system has been developed to eliminate this risk. Due to huge volumes of currencies traded daily could have foreign exchange failureD for an international financial system.
The continuous interconnected settlement system works from London, where it may be the most effective to respond to the requirements of financial markets around the world. A five -hour settlement window is used to overlap operating times for these institutions. The settlement time starts at 7:00 am. Central European time and ends at noon. CLS trades in 17 currencies and sets more than half of all foreign exchange transactions around the world.
CLS maintains gross settlement accounts (RTGS) in real time at the Central Banks participating. Members of the settlement, ie CLS shareholders, maintain ACC with multiple currencies of account at cls. Members submit instructions for stock exchange transactions and CLS correspond and verify both sides of the exchange. The settlement is only processed for transactions in which members have the corresponding funds in the appropriate currency and sufficient liquidity to complete the payment. If one of the sides tRansaks lacks sufficient means, the continuous interconnected settlement system claims that the transaction until the next cycle, when the availability of funds will be checked again.
Members of the settlement are informed about the required payments to be settled on a given day based on their net position of each currency. Transfers are not required for each processed transaction, but are carried out based on the total funds required for all verified and completed payments within the minimum liquidity limit of the specified CLS. The system of continuous interconnected settlement reduces the requirements for settlement for collateral in the accounts and balances of RTGS maintained in central banks, but requires sufficient liquidity to process transaction transactions during the cycle.