CLS Bank

This chapter focuses on the CLS Bank. CLS Bank International (hereinafter referred to as “CLS Bank”) was established in 1999 to eliminate settlement risk associated with settling foreign exchange (FX) transactions in different time zones. It provides the unique multi-currency Payment versus Payment (“PVP”) settlement service for the major players in the FX market. Although CLS Bank was established as a private bank in the US, the main purpose of the Bank is neither to accept deposits nor to make loans. Its function is dedicated to providing a multi-currency settlement service. Thus it is more appropriate to regard CLS Bank as a kind of payment system, or market infrastructure than just a private bank. This chapter elaborates on the mechanism of CLS Bank, which includes the organization, the shareholders, the eligible currencies, and the accounts used for CLS settlement. The funding and settlement procedures and risk management schemes of CLS Bank are discussed in greater detail. In addition, the impact of CLS Bank to FX settlements and the FX market is also analyzed.