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Rethinking FX Settlement Cycles
Following the release of our joint report – ‘Reimagining same-day FX’ – we sat down with FNA to take a deeper dive into the study and its findings.
About the report
Discussions around same-day and instant settlement have intensified in the FX space in recent years. The same-day market is still considered quite niche, but we have observed increases in same-day activity within our bilateral netting service, CLSNet.
Additionally, most experimentation so far has focused on the idea of instant settlement, but one factor that’s often overlooked is the impact on liquidity. To enable more same day (or even instant) settlement, more frequent settlement cycles are required. But, as settlement frequency increases, netting efficiency tends to decrease and can lead to higher funding requirements for market participants.
The study examines this relationship more closely. It focuses on some of the more practical aspects, like how much netting efficiency drops with, potential benefits of and the best time for – more frequent settlement cycles.
CLS and FNA - a fireside chat
Emanuel Vila, Director, Strategy and Innovation and FNA’s Dr Carlos Leon discuss how settlement works today, how the study fits into the current climate, what makes it unique and how the collaboration came about. They also talked about the study’s hypotheses and what its conclusions may mean for the FX market as a whole.
