The number of funds settling payment instructions derived from foreign exchange deals through CLS Bank International (CLS Bank) has now exceeded 300.
Since launching its Enhanced Fund FX service, CLS Bank has seen a steady increase in the number of users. Now fund managers, pension funds, hedge funds, investment funds and asset management divisions of banks are using CLS to settle payment instructions from foreign exchange deals relating to cross-border investment activity for 338 funds. Since the beginning of 2005, there has been a 445% increase in fund participation in CLS.
One of the first to use this new service was Newton Investment Management Ltd (Newton). The company had just completed a major STP project and it was decided to consider other opportunities to improve operational efficiency and reduce cost. CLS was identified as the way to do this.
The main factors behind the decision to implement CLS were:
- To reduce the number and cost of investigations covering missed payments. This was a major concern for the company.
- As leverage to reduce the charges applied by Custodians to cover factors such as settlement risk and investigations. Newton maintained that with CLS this charge is not applicable and can be reduced considerably.
- Settlement risk.
"Our implementation of CLS was driven by the need to reduce our FX settlement risk and our perception of CLS as the final link in our STP goals," commented Mohsin Siddiqi, Supervisor, Trade Operations, at Newton. "The benefits in both areas have been tangible. Where we have been able to use CLS credit limits have ceased to be an issue, and the time saved on trade failure investigations has been considerable."
Newton's Operations Team has benefited from the elimination of payment issues with CLS – the time spent on investigations has reduced significantly and has provided more scope to undertake projects and to undertake cross-training. As a result the company also plans to include CLS in its marketing and account opening documentation - it will "sell" CLS as its preferred standard for FX settlement citing the cost benefits to them.
Newton has also experienced a positive impact on the trading front: "We have been able to make more effective use of existing counterparties as a result of the absence of a need for settlement limits, explained Siddiqi. "In the past it was not uncommon for us to "hit" limits thereby requiring more time & energy to strike a trade."