FX: Firm looks to slash banks’ netting costs
London-based Cash Netting Services is aiming to cut hundreds of millions of dollars in annual costs for banks by helping them find netting opportunities on a bilateral basis.
The FX industry veteran behind a proposed payments netting service reckons it could save global banks hundreds of millions of dollars a year by reducing interbank payment flows and associated liquidity and capital management obligations.
Cash Netting Services (CNS) is an information service created to help banks identify netting opportunities on a bilateral basis.
Banks settle a net position with a single payment at the end of each netting session using existing payment methods. Some payment infrastructures incorporate netting mechanisms, such as Clearing House Interbank Payments Systems (CHIPS) for USD payments.
However, the schemes currently available have limited flexibility – operating prescribed payment/netting windows – and are currency specific, which means banks need to set up specific infrastructures for each currency.
CNS analyses high-value payments data from participating banks and, at agreed times, calculates and publishes net cash positions per currency between pairs of banks, providing details of all payments included in the net calculation.
Net payment obligations are determined by bilateral netting agreement (by currency) between pairs of participating banks. In accordance with the terms of these agreements, participating banks receive payment messages in Swift format to facilitate net payments.
The service is currency agnostic, allowing banks to see netting opportunities in payments in any currency.