The CLS Aggregation Service: taking huge steps towards eliminating operational risk

The CLS Aggregation Service, jointly built by CLS Group and Traiana, an ICAP company, went live in January, providing trade aggregation services to participants active in the over-the-counter FX market. Frances Maguire explores how the service is heralding a new chapter in operational risk reduction and banking industry collaboration.

CLS already successfully eliminates settlement risk for over three quarters of inter-dealer trades. However, almost as soon as the bank-owned CLS launched an industry-wide gross settlement system in 2002, the debate began about moving from gross settlement to settling ‘netted’, or averaged, trades, and the aggregation service has been designed to address this.The FX market has undergone dramatic growth in terms of volumes traded and the expansion of its community, which now includes hedge funds, algorithmic traders, and retail and institutional participants, many of whom are prime brokerage clients of the banks. With FX increasingly being traded as an asset class, algorithmic traders alone can post tens of thousands of trades an hour.A pre-settlement service CLS Aggregation Service is a pre-settlement service to address operational risk issues caused by high frequency, low value FX trades attributable to algorithmic trading, prime brokerage and retail aggregators. This is a collective effort to...continued

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