Marc, you have worked at the European Central Bank for 22 years and played a key role in revolutionizing Europe’s settlement infrastructure.
Why did you decide to take on the top job at CLS?
CLS has a unique and important position in the FX market at a global level. Following more than 22 years in a senior role at a central bank, joining the world’s leading provider of FX settlement services is a logical next step in my career. This role provides an opportunity to bring my experience in operating, defining, and leading the implementation of policies for both existing and new market infrastructure and payments services to CLS.
How do you anticipate that your extensive experience at the ECB will benefit CLS and help to ensure that it continues to respond to the needs of the FX industry?
My experience at the ECB has given me an in-depth understanding of financial market structure and the expertise to deliver large scale infrastructure projects, coupled with a deep knowledge of global regulatory issues. More specifically, I led the implementation of one of Europe’s largest market infrastructure projects, TARGET2-Securities (T2S) - a securities settlement platform offering centralized delivery-versus-payment settlement in central bank money across all European securities markets. Further, having worked at a central bank for more than 20 years, I feel well-placed to ensure CLS builds upon and maintains the highest standards of corporate governance, risk management, and operational resilience.
The ECB role required me to maintain and improve services within the context of market and technological developments, all while ensuring compliance within the current regulatory environment. That balance of skillsets aligns perfectly with CLS’s strategy to further expand its risk mitigation capabilities for the FX industry through settlement, processing and data solutions.
CLS occupies a unique position in the financial markets, mitigating settlement risk in foreign exchange. What impresses you most about the organization and the way it has evolved?
Over the years the FX market has evolved as a result of structural change, regulatory reform, and new technology. Throughout this transformation, CLS has delivered an exemplary level of service and resilience in order to maintain the stability of the FX market (through the settlement of major currencies) and the wider financial industry as a whole.
At the same time, CLS has also kept pace with an evolving industry, and by using its central position in the global FX market, CLS has helped market participants to address other post-trade challenges.
What will be your top priorities to begin with as the new CEO?
CLS is continuing to strengthen its resilience, control functions and infrastructure as well as drive the uptake of its settlement, processing and data solutions. My experience in re-platforming the whole of Europe’s central bank money settlement services for securities and payments positions me well to lead CLS through this next phase of its evolution. In order to successfully deliver T2S, together with my team I had to bring together multiple stakeholders, including central banks, while remaining mindful of risk mitigation and the timely delivery of resilient and efficient services. That experience applies seamlessly to my goals at CLS: to ensure the highest levels of corporate governance, risk management and operational resilience, while addressing the challenges of digitization, cyber threats and globalization.
As a systemically important financial market infrastructure (FMI), we will continue to ensure the delivery of resilient and efficient services for the global FX market while fostering innovation, not just for innovation’s sake, but to support the industry in responding to the challenges that it faces.
CLS has been actively engaged in the development of the FX Global Code. Do you think it has achieved what was intended?
The creation of the FX Global Code (the Code) is a very positive initiative for the FX market as it promotes the highest ethical standards and best practices among all market participants. It continues to be a significant area of focus for the FX market. At CLS, we strongly support the Code and its objectives, as it addresses risks around confidentiality and conflicts of interest. It has received widespread support from the sell-side. The remaining challenge is to increase buy-side adoption.
Many of CLS’s solutions assist with the compliance of certain principles set out in the Code including Principle 50, which states that “market participants should measure and monitor their Settlement Risk and seek to mitigate that risk when possible.”
When developing CLS’s new post-trade solutions, we have ensured that they align with the requirements and principles of the Code and, in doing so, support compliance by market participants.
CLS currently covers 18 currencies, do you expect to increase the number of CLS eligible currencies?
Our primary mission is to mitigate risk, and above all settlement risk, which involves encouraging broader, active participation in CLSSettlement across the global FX market.
Introducing a currency to CLSSettlement is an extended effort, subject to several complex external factors. We remain in constructive dialogue with governments and regulators to explore the possibilities of introducing new currencies. We are currently working with the Central Bank of Chile to assess the onboarding of their peso, which would be the first South American currency settled in CLSSettlement.
It is also worth noting that we are delivering additional services to mitigate risk and improve efficiencies for FX market participants beyond our core CLSSettlement service and its 18 eligible currencies. One example is CLSNet, our bilateral payment netting calculation service available for both buy-side and sell-side institutions across approximately 120 currencies. It introduces standardized payment netting calculations for FX trades not settling in CLSSettlement and delivers automation for the entire market. By standardizing and automating the calculation of payment netting, CLSNet can reduce costs for market participants, support them in monitoring their bilateral netting positions, and increase liquidity in the FX market.
CLS has seen significant expansion of its business in recent years with the addition of CLSNet and CLSNow – can you provide an update on these services?
CLSNet is functional and operating efficiently. We are currently live with eight participants − Actinver, Bank of China (Hong Kong), Bank of America, BNP Paribas, Citibank, Goldman Sachs, Intesa Sanpaolo and Morgan Stanley. The pipeline of clients continues to grow, with additional participants targeted to go live throughout 2020. We continue to invest in the growth and resilience of CLSNet and have a roadmap of regular enhancements throughout 2020 that will expand the value proposition to clients.
CLSNow is our same-day gross payment-versus-payment settlement service to mitigate settlement risk and optimize the use of available liquidity in the same-day market. The service launched in July 2019 with J.P. Morgan and Goldman Sachs as the first banks to go live on it.
CLS’s priority for 2020 and beyond is to build momentum around the new services we launched in 2018 and 2019. Most of the developments over the coming year will focus on enhancements to CLS’s existing suite of services.
How will you ensure that CLSSettlement, which is a systemically important service, remains completely robust and continues to expand alongside the other business units of CLS?
Internationally, CLS is a systemically important FMI, a designation that reflects our critical role in maintaining the stability of the FX market and the wider financial industry as a whole. Our settlement service requires ongoing investment to ensure it meets the highest of standards. This is why CLS is making the most significant investment in its infrastructure since 2002, ensuring the service is fit for purpose for years to come.
Beyond that, CLS’s three business lines are integral to our strategy and will remain so. Mitigating settlement risk will always be our core priority; however, the processing and data businesses provide solutions to some of the longstanding operational efficiency and risk challenges facing the FX industry. Our focus will be on further increasing participation in these services for the benefit of the industry.
The launch of CLSClearedFX was a landmark for the FX market, which had never before had any kind of central clearing for physically delivered products. How successful has the service been in reducing risk, and how do you plan to expand it?
In 2020 we will see the implementation of phase five of the uncleared margin rules. That implementation will likely lead to an increase in FX clearing, as firms can benefit from balance sheet relief and the variation margin management clearing offers. This will provide a great environment for further growth of CLSClearedFX, the first PvP settlement service for over-the-counter cleared FX products.
The service enables central counterparties and their clearing members to safely and effectively mitigate settlement risk when settling cleared FX products. It delivers capital, margin, leverage, liquidity and operational benefits for market participants and is consistent with goals set by the G20 to promote clearing of standardized derivatives.
We continue to work with other CCPs to expand the CLSClearedFX offering, which is live with LCH for OTC FX options in five CLS-eligible currencies (USD, EUR, GBP, CHF, and AUD).
In two years’ time CLS will be celebrating its 20th birthday having been established in 2002. What do you hope to have achieved by then and how ambitious are your future plans for the organization?
The future of the organization will always lie in the management of FX settlement risk, but it is also evolving to address liquidity risk management, operational efficiencies, the provision of data to the market, and the broader needs of the buy side.
I plan to lead CLS through the future development of relevant solutions that respond to the FX industry’s challenges, using our network to gain insight into the evolution of common interests among our stakeholder community. CLS innovates with purpose to deliver rigorous, forward-looking solutions delivered by a trusted, resilient and efficient FMI, and those ambitions will continue.
In terms of continuing to grow CLS’s community of users, what are the priorities for you?
The buy side is increasingly focused on managing risk, and this we see as a key area of growth for CLS. This is supported by greater use of CLSSettlement by third parties - regional banks, non-bank financial institutions, corporates, and fund managers that are serviced by direct settlement members.
For example, in 2018 the average gross value settled by third-party participants increased by 18%. CLS’s strategy is to grow the market share of CLSSettlement and to further mitigate risk in the FX market through the wider adoption of its ancillary settlement, processing and data solutions such as CLSNet, CLSNow, and CLSMarketData.
We also recognize the need for our clients to have seamless access to their data and value-added services. As such, last year we introduced CLSDirect, our new secure multi-product, multi-channel web-based client platform, which provides a single point of access for many of our new ancillary services and reporting tools, including CLSNet, CLSTradeMonitor, and CLSMarketData. This is an exciting development, and with multiple enhancements and releases scheduled for 2020, we expect this platform to enable new users to access CLS’s ancillary solutions.
CLS has also launched a number of data products in recent years. How successful has this been and what plans are there to expand this business?
While preserving the data confidentiality at the highest level, CLSMarketData provides insights for a clear view and meaningful analysis of the FX market, enabling FX traders to fine tune their analysis and trading strategy. The fragmented nature of the FX market means there is a lack of visibility of the total volume across all venues. With access to more than 50% of global FX traded volumes in the market, CLS processes over 500,000 transactions daily worth USD1.55 trillion.
Since our launch in 2002, we have warehoused the details of every trade to create the largest single source of FX executed trade data available to the market. CLSMarketData offers a unique perspective of FX market activity that provides access to anonymized, aggregated, and executed trade data sourced directly from market transactions.
Given advances in technology and an increasingly challenging regulatory landscape, it is critical that market participants have an in-depth understanding of market dynamics. CLSMarketData can assist users to develop new analytics and provide an opportunity to streamline their FX trading strategies, and it can be accessed through our web-based client platform, CLSDirect. In 2020, we plan to bring CLS’s unique data products to the forefront. Data is a key area in which we can create tangible value for our clients by providing the most comprehensive view of FX market activity.
What are the new ways in which FMIs, like CLS, should support their members? And what impact do technological advancements have?
CLS is constantly evaluating new opportunities to deliver enhanced services to our clients and further mitigate risk in the FX market. This activity includes embracing technological innovation, assessing regulatory change, and translating it into solutions for our members.
Technology is there to answer the needs of the market, and it is important to embrace the aspects of innovation that enable services to be developed in a way that makes them more efficient and more resilient, hence delivering what the market needs. Innovating blindly, without a clear purpose to help our clients, is a missed opportunity to fully utilize existing capacities.
Innovation and technology are and will remain a focus in FX and the FMI world. Payments and financial transactions are going digital, and new technology emerges steadily. However, technology will only transform the market when it is translated into trusted market solutions answering our clients’ needs.
That requires a deep understanding of business processes and platforms, and for those activities currently undertaken by FMIs, the right levels of oversight, governance, credibility and trust – CLS brings this experience of running and maintaining resilient technology and operations at scale.