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CME appoints Citi to handle FX futures settlement via CLS

07 July 2003  |  7373 views  |  0 Citygroup

Chicago Mercantile Exchange has appointed Citigroup Global Transaction Services to provide settlement services through CLS Bank, allowing continuous linked settlement (CLS) of foreign exchange futures transactions.

The Chicago exchange says settlement via CLS will streamline its quarterly currency delivery process and result in cost savings to clearing firms. The move extends the CLS process into a new product space, creating a new market among CME member firms for third party CLS settlement services.

CME's FX contracts currently are settled four times a year using a process in which orders to pay and receipt of funds are confirmed manually. Linking FX futures settlement into CLS will eliminate the need for exception processing, making it part of the mainstream FX settlement process.

Firms that choose to use CLS settlement will no longer be subject to charges for an Order-To-Pay (OTP) by participating banks, and by extension, will not pay a per-contract Clearing House OTP fee. The new procedure reduces the time required for currency delivery from 12 to five hours.

Clearing firms may choose to use CLS settlement for their euro/US dollar-denominated deliveries beginning with the September delivery. CME intends to make the CLS settlement method available for other CME foreign exchange products at a later date.

CME chairman Terry Duffy comments: "Making our delivery process more like the interbank FX delivery process that many global banks already have in place will simplify the process and result in potentially significant cost savings."

He says firms may select the timing of their migration to the CLS system, or may continue to use CME's current delivery procedures, which are not being eliminated.

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