Its context and value in volatile markets. Lynn Mathews CLS Services

Transcription

1 CLS: Its context and value in volatile markets Lynn Mathews CLS Services CLS and the CLS Logo are registered trademarks of CLS UK Intermediate Holdings Ltd 2008 CLS UK Intermediate Holdings Ltd. History and structure 1

2 Background to the formation of CLS Allsopp report / BIS CPSS Goes live Reaches market standard Bankhaus Herstatt 1970s 1990s G20 develops ideas Banks review their internal control processes Industry groups should take collective action Central Bank measures to encourage risk reduction present 3 CLS milestones September 2002: Live with 39 Members and 7 currencies February 2004: First Fund FX transaction ti settled September 2003: 4 more currencies added (to 11) December 2004: 4 more currencies added (to 15) January 2006: Pricing parity reached a year early November 2007: Number of third party participants exceeds 2000 December 2007: Credit derivatives settlement goes live for DTCC December 2007: NDF service goes live December 2007: Full out of region resilience March 2008: Record value settled - $10.3 trillion May 2008: Live with Israeli Shekel and Mexican Peso 17 in total September 2008: Record volume - over 1.5 million instructions in one day 4 2

3 CLS - The market standard Eliminates FX settlement risk in the world s single largest market Settles matched trades on a payment versus payment (PvP) basis Guarantees principal amount in the event of counterparty failure Multi-laterally nets all cash obligations per value date Settlement is final using central bank funds Direct participation in local RTGS systems, no agent banks Standard legal framework & operating rules Supported by a robust and resilient infrastructure One of six critical market infrastructures 5 CLS The market standard Payment instructions related to trades executed in six main instruments: FX spot FX forwards FX option exercises FX swaps Non deliverable forwards Credit derivatives Settles seventeen currencies that account for 95% of daily traded value 6 3

4 CLS growth: new participants, currencies and increased usage by existing participants (000's) Sides settled ( Volume Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 $3 trillion daily ($10.3 trillion peak day) Value ($B Bn) 515,000 instructions daily (1,554, peak day) Jan-08 Feb-08 Mar-08 Value Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan highlights Mexican Peso and Israeli Shekel live - May Value record broken on 19 March - $10.3 trillion Volume record broken on 17 September 1.5 million instructions Reserve Bank of New Zealand live as first Central Bank Member Bank of China HK, Shinhan Bank, Bank Leumi and Bank Hapoalim live NDFs - 23 banks engaged in initiative of which: 15 completed trialling required to go live Approximately 8 targeting 2009 go live 8 4

5 CLS passes the test in recent market events W/c 15 September: exceptional sustained volumes and values Settlement of USD 26.5 trillion and 4.4 million instructions for the week Collapse of Lehman Brothers: CLS community worked together Minimal number of trades were rescinded/withdrawn Lehman trades were settled - some for very large amounts Increased level of AIG related instructions submitted on peak volume day New peak volume day of 1.5 million instructions on 17 September CLS worked exactly as designed, huge settlement risk values taken out of the market 9 CPSS report: Progress in reducing foreign exchange settlement risk CLS now settles 55% of FX transactions of those surveyed More than half of institutions surveyed expect to settle more of their transactions ti through h CLS in the future The report highlights the need for further action to remove settlement risk from the remaining 45% of transactions; CLS Bank is seen as an important contributor to this objective. Full report available from Progress in reducing foreign exchange settlement risk, CPSS publication no: 83, May

6 The Structure Shareholders CLS Group Holdings Representative office Tokyo CLS Services London CLS Bank International New York Settlement Member User Member Third party service provider Third parties 11 CLS Shareholders Australia - Australia and New Zealand Banking Group Limited Commonwealth Bank of Australia National Australia Bank Westpac Banking Corporation Belgium - Fortis Bank KBC Bank Canada - Bank of Montreal The Bank of Nova Scotia CIBC Royal Bank of Canada The Toronto-Dominion Bank China Bank of China Denmark - Danske Bank Nordea France - BNP Paribas Caisse Nationale De Credit Agricole Société Générale Germany - Bayerische Landesbank Commerzbank Deutsche Bank DZ Bank Dresdner Bank Hypo Vereinsbank WestLB Israel Bank Hapoalim Bank Leumi Italy Intesa Sanpaolo UniCredit Japan - The Bank of Tokyo-Mitsubishi UFJ, Ltd Mizuho Corporate Bank Norinchukin Bank Sumitomo Mitsui Banking Corporation The Sumitomo Trust & Banking Co., Ltd. Korea Kookmin Bank Korea Exchange Bank Shinhan Bank Luxembourg Dexia Banque Internationale a Luxembourg Netherlands - ABN AMRO Bank ING Bank Rabobank Nederland Norway DnBNOR Singapore DBS Bank Oversea-Chinese Banking Corporation United Overseas Bank South Africa Standard Bank Spain - BBVA Banco Popular Espanol Banco Santander Sweden - Skandinaviska Enskilda Banken Svenska Handelsbanken Switzerland - Credit Suisse UBS Zurcher Kantonalbank United Kingdom - Barclays Bank HSBC Holdings Royal Bank of Scotland Standard Chartered Bank United States - American International Group Bank of America The Bank of New York Bear Stearns Securities Citibank The Goldman Sachs Group JPMorgan Chase Mellon Bank Merrill Lynch Morgan Stanley & Co. Northern Trust Corporation State Street Bank and Trust Co. 12 6

7 How CLS works How CLS works CLS is a Bank Accounts with all central banks (17) of the currencies settled Settlement Members (58) each have multi-currency accounts with CLS Members have to pay in their net short positions each day Linked settlement takes place on the books of CLS Members receive back their net long positions Members offer CLS access to their own customers (CLS third parties) 14 7

8 CLS Bank membership Two categories of Member: Settlement Member Direct access to CLS system for input of settlement instructions and access to real-time information on instruction status and payment flows Holds a single multi-currency account with CLS Bank International User Member Direct access to CLS system for input of settlement instructions and access to real-time information on instruction status Does not hold account with CLS Bank International, utilises services of designated Settlement Member(s) to handle payment requirements Both categories have the option to become a third party service provider 15 CLS holds a multicurrency account for each Settlement Member AUD CAD CHF DKK EUR GBP HKD ILS KRW MXN NOR NZD SEK SGD USD YEN ZAR 16 8

9 Complete CLS Daily Timeline 00:00 to 09:00 MEMBERS CLS BLUE Cash Management GREEN Failure Management RED Liquidity Provider :30 08:00 08:05 09:00 Initial Pay-in Schedule Issued By CLS to 06:30 Same Day Trade Window Final Pay-in schedule issued by CLS Meet Minimum 8:00 Requirements Notice sent by CLS if minimum Pay-in amount not received for any short cy Meet Minimum 9:00 Requirements Projects minimum pay-in amounts required prior to specific pay-in times for all short currency positions Projects pay-out amounts in total for all long currency positions Opportunity to introduce instructions ti from I/O Swaps to settle at CLS Bank Resulting cash movements will alter Pay-in schedule Projects minimum pay-in amounts required prior to specific pay-in times for all short currency positions Includes any same day trades and bilateral rescinds matched by 06:30 Sufficient funds must be paid to CLS Bank to meet minimum requirements Pay-in call for account value sent by CLS if no Pay-in amounts received. Pay by 08:50 Sufficient funds must be paid to CLS Bank to meet minimum requirements 17 Complete CLS Daily Timeline 09:05 to 10:50 MEMBERS CLS 09:05 09:50 BLUE Cash Management Pay-in call for settlement issued by CLS if there are unsettled instructions Pay-in call for settlement t should have been received at CLS Bank GREEN Failure Management RED Liquidity Provider Amount required will ensure settlement of any instructions with parties other than a primary fail 10:00 Meet Minimum 10:00 Requirements Sufficient funds must be paid to CLS Bank to meet minimum requirements 10:05 10:30 10:50 Pay-in call for Asia/Pacific Currency close issued by CLS CLS Bank may apply for extension to Japan RTGS system Pay-in calls for currency close should have been received at CLS Bank If there are short positions or long positions that cannot be paid out due to lack of pay-in from other currencies 18 9

10 Complete CLS Daily Timeline 11:00 to 11:30 MEMBERS CLS 11:00 BLUE Cash Management Meet Minimum 11:00 requirements GREEN Failure Management RED Liquidity Provider Sufficient funds must be paid to CLS Bank to meet minimum requirements 11:00 Liquidity Providers required for Asia/Pacific currency close If there are short positions or long positions that cannot be paid out due to lack of pay-in for other currencies 11:00 Contact Liquidity Provider for quote on overnight swap Base currency amount and Counter-currency specified 11:05 11:25 11:30 CLS Bank accepts quote online CLS Bank receives advice of credit to its CB account and issues instructions All Swap proceeds should have been received at CLS Bank Liquidity Provider has obligation to issue payment instructions to deliver currency to CLS Bank account within 20 minutes Instructions issued are to deliver counter-currency to Liquidity Provider 19 Complete CLS Daily Timeline 11:45 to 13:05 MEMBERS CLS BLUE Cash Management GREEN Failure Management RED Liquidity Provider 11:45 Asia/Pacific currencies payout completed 12:00 Asia/Pacific Currency Close 12:00 12:05 13:00 13:05 Meet Minimum 12:00 requirements Pay-in call for European/North American Currency close issued by CLS Liquidity Providers required for European/North American currency close Contact Liquidity Provider for quote on overnight swap Sufficient funds must be paid to CLS Bank to meet minimum requirements If there are short positions or long positions that cannot be paid out due to lack of pay in for other currencies If there are short positions or long positions that cannot be paid out due to lack of pay-in for other currencies Currency required amount and Counter-currency specified 20 10

11 Complete CLS Daily Timeline 13:05 to 13:45 MEMBERS CLS BLUE Cash Management GREEN Failure Management RED Liquidity Provider 13:10 13:30 13:40 13:45 CLS Bank Accepts quote online CLS Bank receives advice of credit to its CB account and issues instructions All Swap proceeds should have been received at CLS Bank European/North American currencies pay-out completed Liquidity Provider has obligation to issue payment instructions to deliver currency to CLS Bank account within 20 minutes Instructions issued are to deliver counter-currency to Liquidity Provider European/North American Currency Close 21 CLS Activity 20 January 2009 Settlement completed at 08:41CET Pay-out in Asia Pacific currencies was completed at 09:34CET Total In/Out Swap sides 536 Gross Value of In/Out Swap sides USD140 Billion Total number of sides settled (after splitting) 1,111,486 Gross value settled USD5.061 Trillion Net funding total USD41 Billion 22 11

12 CLS benefits & future focus CLS benefits by business function Business opportunities Cost and process efficiencies Treasury Back office payments and nostro services Risk Credit Increases trading opportunities Opens up CLS Membership & governance benefits Offer local currency nostro services opportunity Provides third party services opportunity Reduces or eliminates need for FX trading lines Risk reduction and controls support business growth opportunities Accurate capture of FX transaction costs Best in class cash forecasting Reduces payment volumes & costs Reduces payment risk Rationalise treasury nostro network Eliminates settlement risk Reduces operational risk Provides a resilient, scalable service architecture 24 12

13 CLS strategy overview New Products Value delivered Increase participation Grow volume Reduce unit cost 25 Looking to the future Stay the standard for FX settlement Evolve with the market And extend the coverage Become the standard for NDFs and option premiums Meet the needs of the market re credit derivative settlement Potentially extend CLS s coverage to other asset classes Deliver sustained increase in shareholder value 26 13

14 CLS: Its context and value in volatile markets Lynn Mathews CLS Services CLS and the CLS Logo are registered trademarks of CLS UK Intermediate Holdings Ltd 2008 CLS UK Intermediate Holdings Ltd. 14