Risk management: Leading banks seek better matching and netting for FX derivatives

FX settlement system CLS has responded to its member board's request to investigate the feasibility of adding a matching and netting facility for non-eligible currencies (NECs) and the settlement of FX option premiums, non-deliverable forwards (NDFs), interest rate swaps and credit derivatives. CLS Bank Settlement Members have been meeting with CLS to thrash out the design and the attractiveness of the inclusion of these more complicated FX-related products. While use of FX derivatives has grown, some banks have voiced concerns that the pace of growth is stretching their back offices. "FX players are now being squeezed between the conflicting forces of growth and the need to tidy up their operations," says Jonathan Butterfield, executive vice-president at CLS. "The optimal way to do this is to establish a level of standardization and use of common infrastructures collectively."