Summer 2024



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In this issue

Introduction:
Why FX Settlement Risk is on the rise

FX settlement exposure is an important consideration not just in FX but across the global financial system. The 2022 BIS triennial survey found that almost one-third of deliverable FX turnover ($2.2 trillion) was subject to settlement risk, up from $1.9 trillion in 2019.

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Market Watch:
What the 2022 BIS Triennial Survey is telling us

Market participants have two main options for mitigating FX settlement risk. First, they can bilaterally offset their payment obligations to reduce the amounts that need to be settled (ie “pre-settlement netting”). Second, they can settle any remaining turnover via payment-versus-payment (PvP) arrangements or via the same clearer, termed “on-us”.

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Commentary & Perspectives:
Guaging the extent of
the problem

The FX industry continues to work hard to find ways of not just mitigating settlement risk, but improving access to market data to improve understanding of the scale of the issue.

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Expert Opinion:
The importance of mitigating
FX Settlement Risk

Foreign exchange (FX) is the backbone of global trade: trillions of dollars are exchanged daily across global markets. FX settlement transactions are key to a functioning global financial system.

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Service Spotlight:
Casting light on the critical
role of CLSSettlement
and CLSNet

Lisa Danino-Lewis, Chief Growth Officer, CLS, highlights the benefits of CLSSettlement and CLSNet and what factors having been influencing their increased use and adoption.

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Provider Review:
OSTTRA - Helping to solve the
post-trade challenges of the
financial markets

OSTTRA plays a critical role in supporting global financial markets, connecting thousands of counterparties on its multi-asset networks that underpin the post trade lifecycle from trade capture, through portfolio optimisation, to clearing and settlement.

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Provider Review:
Capitolis - Unlocking capital
constraints and helping
to reduce risk

Capitolis’ solutions are used by the world’s leading financial institutions to reduce risks and costs from their derivatives portfolios. Utilising optimization capabilities and worldclass technology, the company delivers solutions for its clients to more effectively manage their financial resources.

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Industry Views:
What can be done to increase
the appeal and adoption of
PvP settlement mechanisms?

FX market participants have always prioritised reducing settlement risk and over the years, payment-versus payment, or PvP, has emerged as one of the best ways of reducing it. Despite generally positive sentiment toward PvP, the proportion of PvP settled trades has decreased.

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Conclusion:
The promise of new technology
and prospects for the future

Payment versus payment (PvP) settlement offers FX market participants plenty of benefits – benefits that every stakeholder recognizes. However, the rising proportion of non-PvP settled trades tells a different story.

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