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Study Shows that CLS Benefits Go Beyond Risk Reduction

The adoption of CLS by the major FX Trading banks has delivered not just the expected settlement risk reduction but also significant scalability in processing and a reduction in the Cost per Trade reports a survey by Z/Yen Limited, the city based Market Intelligence firm.

2004 was the first full year of CLS for the banks. For the year, on average, just under 50% of Interbank trades were settled through CLS although this ranged from 15% to 65% for individual banks.

One of the main benefits of CLS has been the ability to achieve volume scalability without the need for additional processing staff (see below). Usage of CLS, coupled with additional IT investments has meant that many banks were able to INCREASE their FX volumes significantly between 2003-2004 with the same or LESS headcount.

In addition to increased scalability, the processing Cost per Trade for Interbank FX has also reduced significantly since 2003 (see right). In 2004, the average internal cost of processing a CLS Interbank trade is $1.30 compared with $3.70 for a non-CLS Interbank trade and $5.80 for a Corporate trade.

Jeremy Smith, Z/Yen’s Director of Financial Services, said, "CLS has reduced internal processing costs for Interbank FX trades, the industry now needs to address the issue of reducing costs for Corporate trades, particularly the confirmation process."