The Hindu Business Line : Clearing Corpn to offer cross currency settlement via CLS

CLEARING Corporation of India Ltd has got approval from Reserve Bank of India to facilitate cross currency settlement in 15 foreign currencies, through the Continuous Linked Settlement (CLS) system.

The facility is expected to begin within a month, as soon as member banks get approval from their respective boards. The CLS is a real time system that allows simultaneous settlement of both legs of a foreign currency trade in CLS eligible currencies, irrespective of time zones.

CLS settles both spot and forward foreign exchange transactions. In order to provide this real-time gross settlement, a special purpose bank has been created, called CLS Bank International. It has links to the RTGS systems of the relevant currencies.

The 15 currencies that are eligible for CLS, as of now, are Australian dollar, Canadian dollar, Danish krone, Euro, Hong Kong dollar, Japanese yen, Korean won, New Zealand dollar, Norwegian krone, Great Britain pound, Singapore dollar, South African Rand, Swedish kroner, Swiss franc, and US dollar.

CLS Bank, which is governed by the US Fed, maintains an account at each central bank and has access to the payment system of each currency. Dr R.H. Patil, Chairman, CCIL, said: "We have completed our formalities with RBI. Now the member banks have to take approval from their respective boards." The main essence of the CCIL product offering is to aggregate trades reported by all member banks. The higher volumes will enable CCIL to drive for better pricing and improved liquidity management.

For banks the advantages include efficient operation and easier back office operations. As the funding is on the basis of net trades, as against funding for each transaction, the liquidity requirement can reduce up to 90 per cent, said an official from CCIL. Members will also receive real-time information over the settlement cycle that enables them to manage liquidity more efficiently and reduce operational risks.

As of now CCIL undertakes multilateral net settlement of inter-bank forex trades in US dollar/rupee. Dr Patil said that on an average, over 3,500 deals for a gross volume of around $4 billion are accepted for settlement daily.

CCIL offers rupee-dollar trading through its platform FX-CLEAR. This platform, which was launched in 2003, has 50 banks, foreign and Indian as its members. Several major Indian banks have expressed interest in settlement through CLS. Dr Patil said.

"The foreign banks have their parent branches as settlement members of CLS. But all the Indian banks are interested. In fact, the demand came from our members." A head treasurer of a private bank said, "We have to see if it is cheaper to do the cross currency settlement on our own or to go through CCIL's CLS services. Our back office is working out the costs and if it is cheaper we may consider shifting to it."

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