At the top of this hierarchy are payment-versus-payment (PvP) settlement mechanisms that fully eliminate FX settlement risk, like CLSSettlement, followed by a cascade of methods for reducing FX settlement risk, from the netting of FX obligations to minimizing gross bilateral settlement, which sits in the final stage of the risk waterfall. The revised Code emphasizes that where practicable, “gross bilateral settlement should be minimized”, as these settlement practices carry higher risks.

CLS supports market participants’ adherence to Principle 35 of the Code by providing PvP settlement on a global scale through CLSSettlement. As the wholesale settlement backbone for the global FX market, it settles approximately USD7 trillion every day for 18 of the world’s most traded currencies. CLS estimates that it has captured 90% of the CLSSettlement-addressable market, with volumes continuing to grow. In June 2024, CLS settled a record value of USD19.1 trillion.

Further down the waterfall, the Code recommends that when settlement risk cannot be fully mitigated, market participants should minimize both the size and duration of this risk as much as “is practicable” and encourages the use of automated netting systems.

Another CLS service, CLSNet, provides a standardized, automated bilateral payment netting calculation service for over 120 currencies, including emerging market (EM) currencies, across various FX trade types, including same-day trades and non-deliverable forwards. By centralizing and automating the netting process, CLSNet enhances operational efficiency and mitigates risk for currencies and participants that cannot access CLSSettlement, supporting adherence to Principles 35 and 50 of the Code.^[2]

Over the past year, CLSNet has experienced significant growth, including a 40% increase in average daily netted value, reaching USD148 billion.^[3] As a trusted partner in the global FX ecosystem, CLS is dedicated to supporting market participants’ adherence to the FX Global Code while driving innovation that enhances safety, efficiency and resilience within the FX market.

Marc Bayle de Jessé, CEO of CLS, expressed his support for the updated FX Global Code, stating, “We welcome the Code’s continued emphasis on mitigating FX settlement risk via PvP mechanisms and automated netting solutions, using the ‘risk waterfall’ concept as a best practice approach. The principles outlined in the Code are critical for reducing systemic risk while enhancing resilience and efficiency in the global FX market.

“We are committed to expanding access to PvP settlement solutions and promoting best practices as outlined in the Code. Significant growth in CLSNet is bringing risk mitigation and operational efficiency to more and more currency flows outside of CLSSettlement.”

“By collaborating with the market and leveraging insights from our market data, we aim to enhance the understanding of settlement practices and ensure that the FX ecosystem is well-equipped to tackle emerging challenges. We will continue to work closely with the GFXC to advance these objectives and support adoption of the updated Code.”