Omgeo Enhances Alert Database for CLS Settlement Instructions
July 26, 2010
Omgeo Monday took a step forward in ensuring more efficient processing of foreign exchange transactions by enhancing its Alert standing instructions database to include settlement instructions for forex trades settled through CLS Bank.
As a result, fund managers or their custodian banks using the Alert database can now upgrade their standing settlement instructions not only for forex trades settled outside CLS Bank but for those settled through CLS Bank’s platform.
That platform, known as CLS settlement, lays claim to being the world’s largest system for settling foreign exchange transactions.
The system, which originally stood for “continuous link settlement,” went live in 2002 and now processes 17 major currencies –US Dollar, euro, UK Pound, Japanese Yen, Swiss Franc, Canadian Dollar, Australian Dollar, Swedish Krona, Danish Krone, Norwegian Krone, Singapore Dollar, Hong Kong Dollar, New Zealand Dollar, Korean Won, South African Rand, Israeli Shekel and Mexican Peso.
The CLS system settles transactions on a payment versus payment basis, also known as PVP. When a trade in foreign currencies is settled, each of the two parties to the trade pays out in one currency and receives in a different currency. PVP ensures that these payments and receipts happen simultaneously, or, continuously linked.
.So far this year, the CLS system has been settling an average volume of 800,000 instructions a day with a value of $4 trillion.
“We had been receiving requests from our large fund manager clients to add CLS settlement instructions to the Alert database to provide them with a single place of access for settlement instructions,” says John Burchenal, managing director of market growth for Omgeo, a post-trade communications service provider.
That means fund managers no longer have to access multiple internal databases or even spreadsheets to keep track of their settlement instructions for forex trades which settle through CLS Bank.
Over 2,000 fund managers and custodian banks already rely on the Alert database to access 3.6 million standing settlement instructions for U.S. equity, foreign equity, fixed-income and derivatives as well as forex trades which don’t settle through CLS. Those instructions -- which typically tell the custodian bank to which bank account for which underlying fund manager client to send cash or securities when a trade is settled must be updated by either the fund manager or its custodian bank.
Currently, fund managers can settle their foreign exchange transactions via the CLS system as long as their custodian bank or broker dealers do so; CLS Bank estimates that about 100 fund managers are accessing their platform through their 19 custodian banks or 30 broker-dealers.
“Fund managers can send their foreign exchange settlement instructions to CLS to either be immediately matched or flagged for correcting,” says Jonathan Butterfield, director of communication for CLS in London.
The matched instructions are stored by CLS and processed for settlement on the scheduled settlement date. Fund managers can receive real-time information on the status of their trades from their custodian bank or broker dealer so their operations staff can resolve any issues prior to settlement date.
Butterfield says that CLS has not encountered a settlement failure over the past five years. By contrast, on average 2 percent of forex trades which settle outside the CLS platform fail to settle on time. Using Alert, fund managers will ensure that their settlement instructions are accurate – and can be immediately matched -- because nine required data fields will be populated correctly.
