CLS settles multicurrency interbank payments in 17 currencies, the bulk of which are for the euro/USD currency pair.
The settlement is made on a gross basis according to a “payment-versus-payment” mechanism, whereby participants pay the amounts owed within the settlement windows for each currency (pay-ins) after which CLS makes pay-outs to the participants with long positions.
Settlement is made through movements in the accounts CLS holds with each of the central banks whose currencies it handles. In this way credit risk, and therefore settlement risk, is greatly reduced.
CLS has 63 direct settlement members (all banks with large volumes of FX trades) and about 10,000 indirect participants, including several central counterparties.
The large volume of trades handled and its links to the real time gross settlement (RTGS) systems that process FX transactions make CLS a Financial Market Utility (FMU) of systemic importance to the US and global financial markets. It must therefore comply with the recommendations contained in the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMI).
CLS is a bank-owned institution established in the United States and supervised by the Federal Reserve Bank of New York. It is also subject to cooperative oversight by the central banks that issue the various currencies traded; in the CLS Oversight Committee the Eurosystem is represented by the central banks of the G10 countries that promoted the establishment and launch of the CLS in 2002, including the Bank of Italy.
Central counterparty