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CLS solidifies its position

Continuous Linked Settlement (CLS), the electronic settlement network for foreign exchange, is handling a growing proportion of transactions globally, according to a new report.

The survey shows that CLS is becoming an increasingly established and integral part of the foreign exchange markets. But some of the network?s earlier plans, such as adding money market instruments, have been delayed.

The report by TowerGroup found that two-thirds of CLS?s member banks now use it to settle at least 50% of their daily FX volumes. TowerGroup predicts that by the end of 2005, nearly 90% of CLS members will be using the network that extensively.

CLS Bank was set up in September 2002 to eliminate settlement risk in FX trades. Banks feed trades into the system and CLS matches and settles both sides of each trade simultaneously at fixed points through the day. Because settlement is simultaneous, banks do not need to set aside large amounts of risk capital.

Since this time last year, CLS has increased the number of currencies it handles from seven to 11, and has increased the daily number of trades it settles to around 130,000 from 30,000 a day.

This increase in activity reflects a growing acceptance by banks of the system and a general rise in the amount of FX business.

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