Called the Electronic Settlement Network (ESN), it is a pay-as-you-go post-trade processing utility for the market. Inevitably, this is likely to be reported as a challenge to CLS; but at first glance ESN looks far cleverer than a half-baked attempt to smash CLS’s quasi monopoly in settlement.
The grumbling about the high cost of CLS will always continue. However, while it has undoubtedly proved itself again over recent months, it is a valid argument that settlement in FX can be quite a lot more expensive than in other assets. This higher cost is not all down to the idea that FX settlement can be more complex – the industry has to consider how it can introduce greater post-trade efficiencies.
A major reason why is because of the consolidation that is taking place within the industry. It is impossible to predict how many counterparties are going to disappear, but some major players have already fallen by the wayside. And if FX is to remain buoyant, the liquidity that they have taken with them needs to be replaced. The cost of running post-trade infrastructure is relatively fixed, so a key element in competitiveness is pushing through a lot of volume.