CLS Bank will continue to grow market share and will be settling 83% of total member volume by the end of 2007, according to research from TowerGroup conducted among the 49 banking members of the FX settlement system and 43 third party customers.
TowerGroup also predicts that the percentage of third parties settling over 50% of their FX volume through CLS Bank is set to rise from 64% now to 81% by the end of 2006.
The research suggests that in addition to significant back office benefits, CLS continues to impact the front office, with 82% of members reporting changes to the credit approval process and 29% eliminating settlement limits completely for CLS counterparties.
A third - 33% - of members and 45% of third parties also report changed trading practices as a result of CLS - 69% of members reporting a change favoured CLS counterparties and 56% increased spreads for non-CLS counterparties. Almost three quarters (74%) of third parties reporting a change also favoured CLS counterparties and 53% received larger trading lines.
TowerGroup says CLS is also reducing costs. Of those third parties reporting a change in the cost of settlement, 62% said that costs had fallen following the implementation of CLS. Over half (58%) of third parties had seen a reduction in trade failure rates, with 65% of these reporting that this had resulted in cost savings.
Looking ahead, members predicted a doubling of the number of third parties using CLS by the end of 2007. The sectors and regions seen as having the biggest potential for third party growth were banks in Asia and corporates and investment funds in Europe.
David Medeiros, director of research for global payments, TowerGroup, says: "CLS is taking all the appropriate steps – adding new CLS-eligible currencies, supporting settlement members in their efforts to recruit new types of third-party participants such as corporations and fund managers, and extending the CLS product portfolio to new types of FX-related financial instruments – to optimise the value of the CLS system to the financial community.
"These steps all promote greater participation in the system and, as the survey respondents predict, ongoing growth in transaction volumes, which will in turn reduce per-transaction costs, enhancing the value of the system for all participants."