CLS Group (CLS), a leading provider of risk mitigation and operational services for the global foreign exchange (FX) market, today announced that fund management institutions can access the CLS system in Korea for the first time via CLS third-party service provider, HSBC.

This marks an important milestone in the efforts of CLS, settlement member banks, non-bank financial institutions (NBFIs) and the Bank of Korea to further reduce FX settlement risk among counterparties in the country, which supports broader global risk mitigation. This announcement builds on the earlier adoption of CLS participation in Korea by other NBFIs, including a number of leading securities brokers. Third-party participation globally accounts for approximately 22% of the total value settled in CLS and there was a 12% increase in the number of third-party participants using the service in the Asia Pacific region in 2016.

The Korean FX market has evolved significantly in recent years. A core catalyst has been the transformative increase in participation from investment managers and other NBFIs, as well as the diversification of investment towards foreign assets – a trend which is predicted to continue over the coming years. As a result, managing counterparty exposure and mitigating settlement risk have become increasingly critical for market participants.

Rachael Hoey, Head of Asia at CLS, commented: “Expansion of third-party participation by NBFIs is a key part of our strategy to mitigate settlement risk, underpin financial stability and improve trading efficiencies for the global currency market. The growth in fund manager participation in CLS reflects the importance of the buy side in the FX market.

“We expect NBFIs who join CLS to benefit on multiple levels. These include more automated processes and streamlined trading operations, as well as liquidity benefits from netting that lower transaction costs while boosting trading and counterparty limit management efficiencies that support business growth opportunities. All of these are important during normal operations but particularly critical during periods of stress or volatility.”

Soon Hyok An, the Head of Trustee & Custodian Services at HSBC Korea, added: “HSBC Korea successfully facilitated Korea’s first international fund management institution to join CLS in Seoul, Korea. The ability for fund management institutions to settle FX trades via CLS brings Korea in line with other leading financial centers around the world. Effective mitigation of settlement risk is an increasingly important part of an investment manager’s fiduciary duties, with which HSBC Korea and our global and local custodians must comply to secure our client assets. With growing global investment and foreign asset allocation taking place, HSBC Korea is expecting to work with other clients to use CLS in Korea to reduce FX settlement risk and strengthen Korea’s position as a regional trading hub.”