Goldman Sachs and Morgan Stanley are the first institutions to use the new standardized, automated bilateral payment netting service for foreign exchange created by FX settlement service provider CLS.
CLSNet will match, provide confirmation and calculate net payments for FX trades, standardizing payments netting to reduce costs and increase liquidity.
It will also help users comply with certain principles of the FX global code of conduct, which calls for a greater level of standardization in FX trading.
According to CLS, FX trades that settle on a gross basis are exposed to higher settlement risk and are required to hold higher levels of capital against trades than those that have been netted.
CLSNet brings the benefits of netting to institutions that do not use CLS settlement services, including buy-side institutions. It can be used in conjunction with any trading platform, unlike some other netting services.
Six additional participants have committed to joining the service, one of which is known to be Bank of China.
CLS declined to provide any more names of prospective customers, but said one is a Central American bank that is not a CLS settlement member.