After surging to record volumes in September, things cooled off a little in October for CLS, the world’s largest FX settlement service – and therefore a good proxy for overall activity in the world’s currency markets.
The average daily input value submitted to CLS in October was $5.29 trillion, down 10.9% from a record $5.94 trillion in September.
CLS plays a fundamental role in the foreign exchange market. CLS operates the largest multicurrency cash settlement system to mitigate settlement risk for the FX transactions. Settlement risk is the risk that one party pays the currency it sold, but does not receive the currency it bought, resulting in a loss of principal. The impetus behind the creation of CLS came from regulatory concerns regarding the potential for FX settlement risk to be a major source of systemic risk, following the collapse of Germany’s Bankhaus Herstatt. Launched in 2002 and owned by the world’s leading FX banks, CLS settles payment instructions relating to underlying FX transactions in 17 currencies and certain other transactions that result in one-way payments in a subset of those currencies.