CLS Group

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CLS Group
TypeEdge Act corporation
IndustryBanking, financial services
FoundedSeptember 2002
HeadquartersNew York
Area served

CLS Bank International, whose name hints at "Continuous Linked Settlement" and is also referred to as CLS Bank or simply CLS, is a specialist financial institution, the main entity of the CLS Group that started operations in 2002. CLS Bank operates a unique global multicurrency cash settlement system, known as the CLS System, which plays a critical role in the foreign exchange market (also known as forex or FX). Although the forex market is decentralised and has no central exchange or clearing facility, firms that chose to use CLS to settle their FX transactions can mitigate the settlement risk associated with their trades.[1]

CLS demonstrated its risk-mitigation value in the Financial crisis of 2007–2008, during which the forex market remained orderly even in times of severe systemic financial stress,[2] and again during market turmoil associated with the COVID-19 pandemic in early 2020.[3] The CLS System's sophisticated payment versus payment concept does not entirely eliminate forex settlement risk, but reduces it considerably among the currencies that it encompasses.[4]



The creation of CLS Bank was a delayed collective response to the turmoil that followed the failure of Germany's Herstatt Bank on 26 June 1974, which highlighted the counterparty risk inherent in the system of multilateral net settlement through which forex transactions were executed at the time. Over the three days following Herstatt's demise, the amount of gross funds transferred by that system declined by about 60 percent.[5]: 55  The core challenge resulted from the practice of settling each leg of a forex transaction independently, and often at different times with a lag, in the country of issue of each currency. Banks often waited three days or more before they knew with certainty that they had received the currency they had bought in a given such transaction.[5]: 56  The risk of paying out the currency sold but not receiving the currency bought became known as "Herstatt risk" as well as foreign exchange settlement risk, comprising aspects of both credit risk and liquidity risk.[5]: 57 


The way to the creation of CLS was paved by several reports of the Committee on Payment and Settlement Systems (CPSS) hosted by the Bank for International Settlements (BIS), following discussion among the G10 central banks and successive working groups formed by them, on how to best address the Herstatt risk:

  • In 1990, the Report of the Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries, known as the "Lamfalussy Report" for BIS policymaker Alexandre Lamfalussy who led its preparation (not to be confused with the separate Lamfalussy Report of 2001 which initiated the Lamfalussy process in the European Union)[6]: 15 
  • In 1993, the CPSS report on Central bank payment and settlement services with respect to cross-border and multi-currency transactions, known as the "Noël Report" for Bank of Canada policymaker Timothy Noël[7]: 7 

The work hosted at the BIS also took stock on existing efforts to shorten the duration of FX settlement exposures, and initiatives to facilitate bilateral or multilateral netting arrangements. Such initiatives included FXNET, which netted trades each day by counterparty pair; the Exchange Clearing HOuse Ltd (ECHO), a multilateral netting system project in London;[5]: 59  and Multinet International Bank, a New York State-chartered bank that similarly developed a multilateral forex netting clearing house.[8] Such entities, however, had no direct access to central bank currency, and struggled to achieve critical mass. The CLS concept, under which a US bank has direct access to central bank currency in all jurisdictions whose currency it settles, is an exception to usual banking structures and regulations, and required ad hoc legislation to be passed in participating countries.

Lawrence M. Sweet, an official at the Federal Reserve Bank of New York seconded at the BIS from 1994, was instrumental in the elaboration of the CLS concept as secretary, then chair of the CPSS Steering Group on Foreign Exchange Settlement Risk. He also chaired the CLS Oversight Committee from its formation in 2009 until June 2018.[9]

While the central bankers provided the impetus, CLS was technically established as a private-sector project. In July 1997, a group of major forex market participants then known as the G20 banks (not to be confused with the G20 group of jurisdictions that was formed two years later) set up CLS Bank as a limited-purpose financial institution to develop a solution based on the payment versus payment principle in which the two legs of a foreign-exchange transaction are settled simultaneously.[5]: 60  In December 1997, ECHO and Multinet merged with CLS Services, a company simultaneously formed by the G20 banks in London.[7]: 8  In 1998, IBM was selected to develop the CLS technical infrastructure.[10] CLS Bank started operating in September 2002, settling the Australian dollar, Canadian dollar, euro, Japanese Yen, Swiss franc, Pound sterling, and US dollar.

Later development[edit]

The original seven currencies were joined by the Danish krone, Norwegian krone, Singapore dollar and Swedish krona in September 2003; the Hong Kong dollar, Korean won, New Zealand dollar and South African rand in December 2004; the Israeli shekel and Mexican peso in May 2008;[11] and the Hungarian forint in November 2015.[12]

Since it began operations in 2002, CLS has rapidly increased and by March 2017 was settling just over 50% of global FX transactions.[13] As a result, the Financial Stability Oversight Council (FSOC) officially designated CLS a systemically important financial market utility in July 2012.[14]

The single day record for value settled is US$11.11 trillion, set on 21 June 2017. The single day record for volume settled is 2.58 million, set on 14 November 2016.

The CLS membership and shareholder base has grown accordingly, from 39 members at inception in 2002 to 79 shareholders including 66 settlement members and 24,000+ third-party clients as of September 2017.[citation needed]

Group organization[edit]

Legal structure[edit]

Partly as a consequence of the need for consensus among participating central banks, the CLS Group structure involves entities in multiple countries. The group's parent company is CLS Group Holdings AG in Lucerne, a Swiss private holding company. It owns 100 percent of CLS UK Intermediate Holdings Ltd in London, which in turn owns two main subsidiaries: CLS Bank International, a U.S. Edge Act corporation, and CLS Services Ltd, a British company that provides operational support to CLS Bank and associated institutions.[6]: 16  The only other jurisdictions where CLS is established are Japan and Hong Kong.[15]


CLS Group is a commercial entity that is operated on a not-for-profit basis, like other financial utilities such as DTCC and Euroclear. Its shareholders have governance rights but do not gain dividend income or an increase in the value of their shares from retained earnings. As of 2022, CLS's website disclosed 79 banks from multiple jurisdictions as its shareholders.[16]

Supervision and oversight[edit]

CLS Group Holdings AG, while a Swiss entity, is regulated and supervised by the Federal Reserve as a bank holding company in the United States. The Federal Reserve also regulates CLS Bank International, which it supervises as a bank. Under the unique concept initially defined in the Lamfalussy Report of 1990, the central banks of issue of the currencies (other than the US dollar) that settle in the CLS system are involved in the group's "oversight" but without a regulatory or supervisory mandate; the Federal Reserve Board, supported by the Federal Reserve Bank of New York, is the "primary overseer" of CLS Group and CLS Bank, a role it exercises in consultation with the other participating central banks.[6]: 21, 25  The CLS Oversight Committee was formed by the participating central banks in 2009, succeeding earlier committee formats,[9] and operates under a Protocol finalized in December 2015.[17]

As of 2022, the CLS Oversight Committee has 23 members: the respective central banks of issue of the 18 CLS currencies, plus five national banks of the Eurosystem that are also members of the G10, namely those of Belgium, France, Germany, Italy, and the Netherlands.


The CEO of CLS Group and CLS Bank has been, successively, Joseph De Feo (2000-2005), Rob Close (2005-2010), Alan Bozian (June 2010-2012), David Puth (August 2012-December 2019), and Marc Bayle de Jessé (since December 2019).

The boards of both CLS Group and CLS bank have been chaired, successively, by Suzanne Labarge (June 2001-June 2003), Fritz Klein (June 2003-2005), Mark Garvin (2005-June 2007),[18] Gerard Hartsink (2007-October 2014), Ken Harvey (October 2014-June 2022),[19] and Gottfried Leibbrandt (since June 2022).[20]


CLS operates a delivery versus payment (DvP) settlement service which mitigates settlement risk for the FX transactions of its settlement members and their customers (third parties).

CLS operates a global multi-currency cash settlement system through which settlement risk can be mitigated with finality using a combination of PvP (payment versus payment) settlement over CLS central bank accounts, local real-time gross settlements systems (RTGS) and multilateral payment netting supported by a resilient infrastructure.[21]

In a PvP system both sides’ payment instructions for an FX transaction are settled simultaneously. Without PvP there is a serious risk that one party to an FX transaction will deliver the currency it owes, but not receive the other currency from its counterparty, resulting in the loss of principal. This is known as settlement risk, or “Herstatt Risk”, after the German bank, Bankhaus Herstatt, which collapsed in June 1974 leaving many of its FX counterparties with significant losses.[22] In 1995 the Bank for International Settlements presented a possible solution on a PvP basis.[23] In an advancement to this proposal the G20 banks founded an earmarked financial institute, the CLS Bank International.[24]

Following an FX transaction, settlement members submit payment instructions to CLS. These instructions are authenticated and matched by CLS and maintained by the system until settlement date. The CLS daily settlement cycle operates with settlement and funding occurring during a five-hour window when all real-time gross settlement (RTGS) systems in the CLS settlement currency jurisdictions are open and able to make and receive payments. This enables simultaneous settlement of the payments on both sides of an FX transaction.

Each settlement member holds a single multi-currency account with CLS. At the start and end of a normal settlement day, each settlement member has a zero balance on its account. Under normal operations of the settlement service, CLS starts and ends the day with a zero balance in its central bank accounts and in its settlement member accounts. Settlement members may submit instructions relating to their own FX transactions as well as the FX transactions of their third-party customers directly to CLS.

CLS holds accounts with each of the central banks whose currencies it settles.

On each settlement date, upon determining that the accounts of the submitting settlement members satisfy several risk management tests, CLS simultaneously settles each pair of matched payment instructions by making the corresponding debit and credit entries in the settlement members’ accounts at CLS. The settlement of the payment instructions and the associated payments are final and irrevocable.

For example, (GBP/USD = 1.50, EUR/USD = 1.25):[25]

  • By trades:
    • Member 1: Buys 1,000 GBP/USD from Member 2
    • Member 2: Buys 1,000 EUR/USD from Member 3
    • Member 3: Buys 1,000 GBP/USD from Member 1
  • By currency positions:
    • Member 1: Owes USD1500 and GBP1000, collects USD1500 and GBP1000
    • Member 2: Owes USD1250 and GBP1000, collects EUR1000 and USD1500
    • Member 3: Owes USD1500 and EUR1000, collects USD1250 and GBP1000
  • CLS then multi-laterally nets the total obligations:
    • Member 1: Pays 0.0 and receives 0.0
    • Member 2: Pays GBP1000, and receives EUR1000 and USD250
    • Member 3: Pays USD250 and EUR1000, and receives GBP1000

These obligations are funded into and from each member’s respective multi-currency account.

Another key element of the CLS Settlement Service is the liquidity efficiencies delivered through multilateral payment netting. On each day participants will very likely have more than one trade to settle—in practice, major banks will have hundreds or thousands of trades each day. Each day prior to settlement, CLS calculates the funding required of each settlement member on a multilateral netted basis. The amount of cash required by CLS to settle all payment instructions is reduced, allowing each settlement member to transfer only the net amount of its payment obligations in each currency, rather than the total amount of each trade to be settled. On average, CLS netting efficiency is in the region of 96 percent.

In addition to the usual settlement service, the in/out swap process[26] is done before the settlement windows to reduce the payment obligations to CLS and to mitigate liquidity pressures. An in/out swap is an intraday swap consisting of two equal and opposite FX transactions that are agreed as an intraday swap.

One of the “legs” is settled inside CLS in order to reduce each settlement member’s net position in the two relevant currencies. The other “leg” is settled outside CLS.

The in/out swap further compresses payment obligation by an average of 75%, which results in a funding requirement in CLS of less than 1% of the total gross settlement value.

CLS currencies[edit]

CLS has expanded the number of currencies it settles over the years and currently (mid-2022) settles:

Country/entity Symbol Currency
 Australia AUD Australian dollar
 Canada CAD Canadian dollar
 Denmark DKK Danish krone
Europe Eurozone EUR Euro
 Hong Kong HKD Hong Kong dollar
 Hungary HUF Hungarian forint
 Israel ILS Israeli new shekel
 Japan JPY Japanese yen
 Mexico MXN Mexican peso
 New Zealand NZD New Zealand dollar
 Norway NOK Norwegian krone
 Singapore SGD Singapore dollar
 South Africa ZAR South African rand
 South Korea KRW South Korean won
 Sweden SEK Swedish krona
  Switzerland CHF Swiss franc
 United Kingdom GBP Pound sterling
 United States USD United States dollar

See also[edit]



  1. ^ Michael R. King; Dagfinn Rime (December 2010), "The $4 trillion question: what explains FX growth since the 2007 survey?" (PDF), BIS Quarterly Review
  2. ^ Richard Levich (10 July 2009). "Why foreign exchange transactions did not freeze up during the global financial crisis: The role of the CLS Bank". VoxEU.
  3. ^ Julien Sabet (3 November 2020). "The Foreign Exchange market in 2020: three benefits of Continuous Linked Settlement (CLS)". BNP Paribas.
  4. ^ Ben Norman (24 June 2015). "BoE archives reveal little known lesson from the 1974 failure of Herstatt Bank". Bank Underground. Bank of England.
  5. ^ a b c d e Gabriele Galati (December 2002), "Settlement risk in foreign exchange markets and CLS Bank" (PDF), BIS Quarterly Review, Bank for International Settlements
  6. ^ a b c d Paul Miller; Carol Ann Northcott (Autumn 2002). "CLS Bank: Managing Foreign Exchange Settlement Risk" (PDF). Bank of Canada Review.
  7. ^ a b Charles M. Kahn; William Roberds (2000), The CLS Bank: a solution to the risks of international payments settlement? (PDF), Federal Reserve Bank of Atlanta
  8. ^ "Multinet Set To Launch Forex Netting Service". 22 April 1996.
  9. ^ a b "Lawrence M. Sweet". The Clearing House and Bank Policy Institute Annual Conference.
  10. ^ "IBM To Build CLS's Continuous Linked Forex Settlement Service". 4 May 1998.
  11. ^ "The Continuous Linked Settlement foreign exchange settlement system (CLS)" (PDF). Swiss National Bank. November 2009.
  12. ^ "CLS settlement". Magyar Nemzeti Bank.
  13. ^ "Daily FX trade more like $3 trillion than 5 -CLS". CNBC. Retrieved 2017-03-13.
  14. ^ "Financial Stability Oversight Council Makes First Designations in Effort to Protect Against Future Financial Crises". Retrieved 2012-10-18.
  15. ^ "Our offices". CLS.
  16. ^ "CLS Group Holdings AG - List of Shareholders" (PDF). CLS. February 2022.
  17. ^ "Protocol for the Cooperative Oversight Arrangement of CLS" (PDF). U.S. Federal Reserve. 10 December 2015.
  18. ^ Frances Maguire (25 June 2003). "CLS appoints new chairman and vice-chairman". Financial News.
  19. ^ "Ken Harvey to succeed Gerard Hartsink as Chairman". CLS. 3 March 2014.
  20. ^ Colin Lambert (1 June 2022). "CLS Gets New Chair, Directors". The Full FX.
  21. ^ "CLS Settlement". Retrieved 2012-06-30.
  22. ^ Bank Failures in Mature Economies, Basel Committee on Banking Supervision, April 2004, retrieved 2012-06-30
  23. ^ Bank for International Settlements, Payment systems in countries of the Group of Ten, 1995, page 551
  24. ^ Bank for International Settlements, Quarterly report December 2002, page 69.
  25. ^ "CLS Bank & the World of FX Settlement". Forex Magnates. Retrieved 2014-06-14.
  26. ^ "In/Out Swaps". CLS. Retrieved 2014-06-14.

External links[edit]