The Union Bank of Taiwan has signed up to Citibank's continuous linked settlement (CLS) service, which enables it to submit and settle foreign exchange transactions through the CLS Bank. Continuous Linked Settlement (CLS) is a real-time global settlement process that reduces settlement risk caused by foreign exchange (FX) transactions occurring across different time zones.
The CLS Bank went live in September 2002, enabling member banks put details of their foreign currency trades directly into a CLS system. CLS Bank then matches and settles the trades, netting positions in a five-hour window in each 24-hour period.
Seven central banks, including the U.S. Federal Reserve, and 66 major financial firms spent $300 million and six years building the CLS Bank, which suffered numerous delays that were reportedly due to the stringent testing process required of the technology platform at the heart of CLS Bank.
Since September the volumes being settled by CLS Bank have soared. In its first 8 weeks of operation alone, CLS settlements totalled over $5 trillion.
But it's not just the major FX players that are reducing Herstatt risk through CLS. CLS member banks can also offer third-party services to mid-tier and smaller institutions, and are competing for clients, particularly in Asia.
Citibank began offering its service for submitting and settling trades, on an unrestricted basis, through the CLS Bank infrastructure in November 2002. "We are pleased that Union Bank of Taiwan has chosen Citigroup as their CLS third party service provider," says Anthony Nappi, region head of cash, trade and treasury services for Citigroup in Asia Pacific. "We are committed to providing our clients with the premier CLS services in the market."
