Settled values of cross currency swaps have seen continued growth with CLS reporting a 27% year-on-year increase in swaps submitted to CLSSettlement as of Q2 2022.
Due to the high value of the initial and final principal exchanges, cross currency swaps tend to have significant settlement risk exposure. CLSSettlement offers participants the ability to mitigate the settlement risk associated with these transactions.
The rise in traded values in cross currency swaps submitted to CLSSettlement showcases the industry’s commitment to the FX Global Code’s updated settlement risk principles, which include greater emphasis on the use of payment-versus-payment (PvP) mechanisms where available.
Over the past few years, CLS has seen a number of settlement members join its cross currency swaps service, including HSBC and Goldman Sachs.
“It is clear that settlement members are realising the benefits of submitting their cross currency swaps to CLSSettlement, driven partly by policymakers’ focus on increasing the adoption of PvP settlement,” said Lisa Danino-Lewis, chief growth officer at CLS.
“In addition to mitigating settlement risk, firms sending these trades to CLSSettlement benefit from significantly lower funding costs due to the multilateral netting efficiencies CLS provides. On average, just 1% net funding is required to achieve settlement, which frees up cash flow for other business operations.”