The Continuous Linked Settlement (CLS) initiative is set to be a success despite repeated delays of implementation, according to a new report from Meridien Research.
The report, "Continuous Linked Settlement: The Dust Begins to Settle", says that once implementation takes place, scheduled for quarter two, 2002, pressure from central banks and regulators on those remaining financial institutions unconvinced by the new technology will ensure the initiative's ultimate success.
The primary goal of CLS is to reduce the risk banks face when executing foreign exchange (FX) trades by settling both the debit and credit sides of a transaction at the same time, even across time zones. This payment-versus payment matching system will eliminate the exposures between counterparties that can occur when there is a time gap between when currencies are bought and sold.
"The need for CLS is an accepted fact, but developing the solution has been challenging," says Jeanne Capachin, research director at Meridien Research. "With the buy-in of the major FX trading institutions already in place, much of the risk in this market will be mitigated."