Settlement Service
CLS operates a global multicurrency cash settlement system through which settlement risk can be mitigated with finality using a combination of PvP settlement over CLS central bank accounts, local real time gross settlement systems (RTGS) and multilateral payment netting supported by a robust and resilient infrastructure.
In a PvP system both sides’ payment instructions for a FX transaction are settled simultaneously. Without PvP there is a serious risk that one party to a FX transaction will deliver the currency it owes, but not receive the other currency from its counterparty, resulting in the loss of principal. This is known as settlement risk, or “Herstatt Risk”, after the German bank, Bankhaus Herstatt, which collapsed in June 1974 leaving many of its FX counterparties with significant losses.
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