1. Sarah Medlar Relationship Manager CLS Services Istanbul 3 October 2003
CLS Group Meeting
Sarah Medlar
Relationship Manager CLS Services
Istanbul
3 October 2003

2. Agenda CLS – structure CLS – how it works CLS – how it’s working
CLS - next steps

3. Structure CLS Group Holdings - parent company
NY: CLS Bank International
Edge Act Bank - Lead Regulator the Federal Reserve Bank of New York
London: CLS Services Ltd.
Facilities Management/ Operations
Tokyo: Representative office

4. Payment/information flow pre CLS The Problem
EUR agent
Bank 1
USD agent
Bank 2
MT 202
USD funds
EUR funds
MT300
FX-Deal
USD
EUR

5. How the world worked before CLS
Continuous Linked Settlement replaces the method of cross-border settlement
that has been in place for over 300 years.
Before CLS, it took two days or more to settle payment instructions associated
with FX trading transactions and even longer if reconciliation issues and holidays are involved.
The previous method of cross-border settlement involved a complex collection of banking relationships involving banks, their nostro agents and correspondent banks. CLS will facilitate the rationalisation of this web of relationships enabling the reduction in payment flows by as much as 90%.
2 days PLUS

6. Solving the Problem 1995 Allsopp report led to industry initiative
Banks should review their internal control processes
Industry groups should take collective action
Central Bank measures to encourage risk reduction
led to industry initiative
Produced the CLS concept - Preferred Solution
July 1997 New company CLS Services Ltd.
Today 67 shareholders
2 September 2002 “GO LIVE”

7. Overlapping RTGS systems
North America
Europe
Europe
At the heart of CLS Bank’s unique settlement process is the five-hour
operating “window”, during which the participating currency Central Bank
RTGS systems have overlapping operating times – for the first time ever –
that enables cross-currency transactions to be settled and funded on the same day.
In this window eligible settlement instructions for a particular date are settled and funds are requested
to be paid in and are paid out by CLS Bank to complete the projected settlement-funding obligation.
Asia/Pacific

8. CLS Bank is a Multicurrency Bank
Holds a multi currency account for each Settlement Member
CLS Bank holds RTGS settlement accounts with Central Banks
Reserve Bank of Australia
European Central Bank
Swiss National Bank
US Federal Reserve
Bank of Japan
Bank of England
Bank of Canada
Monetary Authority
of Singapore
Danmarks
Nationalbank
Norges Bank
Sveriges Riksbank
CLS Bank maintains links with the relevant central banks’
Real Time Gross Settlement (RTGS) systems
This will enable it to provide global settlement with a similar degree of finality and certainty for CLS-settled trades as is provided through a domestic Central Bank RTGS.
Each Settlement Member holds a multi currency account with CLS Bank, through which payments are made to and from CLS Bank.

9. How CLS Works Submitting Instructions Funding & settlement Funding
06:30
Submitting
Instructions
Funding &
settlement
Funding
completion
CLS consists of an ongoing process of submitting instructions, funding and execution.
Funding and execution takes place during a five hour operations window (three hours in
the Asia Pacific region) that represents the overlapping of the opening times of the seven
CLS RTGS systems. CLS settles both spot and forward foreign exchange transactions – to be eligible
for CLS Settlement each trade must meet three criteria:
• Both counter-parties must be CLS enabled
• Both currencies must be eligible
• Trades must be submitted and matched by 06:30 on the same CLS day for the
relevant value date.
Submitting Instructions
Settlement Members can submit any spot or forward settlement instructions associated
with a foreign exchange transaction directly to CLS Bank up until 06:30 CET for the given CLS
Settlement Day. At 06:30 CET on that CLS Settlement Day each Member bank will receive its
final pay-in schedule. This includes the net amounts owed, or to be received by, that bank in each
currency, based on the total gross positions of the bank’s instructions to be settled that day.
Funding
Settlement Members must provide sufficient funding, where necessary, to ensure that they
have a net positive account balance with CLS before settlement can start.
Members pay-in the net funds based on the 06:30 CET pay-in schedule to CLS Bank’s
accounts at the relevant Central Banks – once the first funding is paid in the settlement
execution cycle starts at CET.
Execution
Funding, settlement, pay-out – a continuous process.
Between 07:00 and 09:00 CET, CLS Bank undertakes a continuous process of receiving funding
from Members, settling of instructions across its books, and the pay-out of funds to Members.
Those trades that cannot immediately settle are placed back in the queue and continually
revisited until settlement is achieved. During this settlement period, CLS Bank is
constantly processing, recycling liquidity, receiving paying ins and paying out until all
instructions are settled.
A further three hours from 09:00 CET enables the finalisation of paying in and paying out of the net obligations. If there are no problems by 12:00 CET, all funds will have been disbursed back
to Members, enabling an efficient use of liquidity.
07:00
09:00
12:00

10. Instructions submitted
Payment Instructions are continuously submitted as trades are made and the back office informed
….Member banks submit payment instructions to CLS Bank for the next day or any future day - spot or forward
These are matched for each date of settlement requested ……….and looking across all the instructions CLS nets 100s of payment instructions into one net total …………..
….The net total of funding that will be required for that day to make settlement…….available to view at any prior time

11. Settlement
Commences at CET and is scheduled to complete at CET.
Risk Management Tests applied to both Settlement Members.
Real-time exchange of currencies i.e. CLS Bank will not settle the trade unless both parties have the required funds available.
Exchange is effected with finality & irrevocability for Settlement Members over their accounts with CLS Bank
Haircut (volatility margin) applied to Settlement Member’s currency balances to minimise credit risk for CLS Bank.

12. Risk Management Tests
CLS Bank applies three tests to each Settlement Member’s account before settling individual instructions or paying out funds
Will both Settlement Members still be within the currency Short Position Limit?
Will both Settlement Members still be within their Aggregate Short Position Limit?
Will either Settlement Member’s account become negative after settlement?
No instructions will settle if any of the six tests fail.

13. Funding CLS Central Bank Accounts The next stage is Funding
At 6.30 on each Settlement Day Member Banks are sent a Pay-In Schedule for the Net Funding required from CLS Bank.
Member banks then need to pay those funds into the CLS Bank accounts at the appropriate central banks ……via their nostros or their own RTGS links to the central banks
………once the first funding is paid in the process of settling the already matched instructions can begin…………...

14. Pay-In Schedule
Multilateral net amount of Settlement Member’s obligations on a given value date.
Short position currencies to be paid in over a period of 5 hours (3 hours for Asia Pacific currencies) commencing at CET.
Long position currencies to be paid out by CLS Bank.
Includes all matched Instructions submitted by the Settlement Member and any User Members & Customers (3rd Parties) that the Settlement Member is sponsoring.

15. Responding to the Pay-in Schedule
Short position limit € 0.5 Billion
09:00 -
10:00 -
11:00 -
08:00 -
12:00
CET
Pay-in
€ 1.0 Billion
Total paid in
€ 166 m
€ 1000 m
€ m
€ 167m
€ 167m
€ m
€ 250 m
€ m
€ m
€ 250 m

16. Pay-outs
Algorithm seeks to make recycle liquidity throughout the process within risk parameters
CLS Bank checks that a Settlement Member is entitled to receive funds, and that funds are available in the Central Bank account before paying out
If Member has unsettled instruction, its pay-out will be adjusted to retain sufficient value to settle irrespective of large intra-day FX move.
No amount will be paid-out that will cause the settlement member’s account to have an overall negative balance.

17. 12:00 CET 12:00 CET C Funding and Pay-out
That process continues until Noon Central European Tine when Pay Out is Complete…..
………..and the next day begins.

18. Payment & information flow under CLS
CLS Settlement
Member B
CLS Settlement Member A
FX-Deal
USD
EUR
MT 300
input
input
Input
Input
information
Information
USD a/c USD a/c
Bank Bank 2
EUR a/c EUR a/c
CLS Bank
CLS Bank

19. CLS Features – a summary
Linked to CB (RTGS)
Finality in PVP settlement
Multilateral Netted Funding
Real Time settlement and funds flow information
Intra-day Capability
Universal: Global Shareholders/Customers
Independent (Utility)
Not a Central Counterparty
Provides Crisis Management Support

20. Other CLS shareholder benefits
CLS Bank membership
Gateway to the provision of third party services

21. Questions?