Foreign exchange market participants should be relieved that the continuous linked settlement (CLS) system did exactly what it was designed to do as the US broker Refco collapsed into Chapter 11 bankruptcy in October. There are no reports of money being paid away without the opposite side of the transaction being received, which can be largely attributed to the success of CLS’s design.
Refco’s spectacular collapse will have revived memories of Baring Brothers’ demise in 1995 and, for those with really long memories, the failure of Bankhaus Herstatt in 1974.
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