CLS and ICAP joint venture to reduce risk and cost in pre-settlement processing for global FX markets
Leading banks support new business to deliver post trade aggregation services
CLS Group, the global industry standard for FX settlement services, and ICAP (IAP.L), the world’s leading inter-dealer broker announce they are creating a new joint venture to provide trade aggregation services to participants active in the over the counter FX market.
The new business is designed to address the rapid increase in foreign exchange trading as an asset class by a widening group of hedge funds, algorithmic traders, retail and institutional market participants, which have brought substantially higher volumes to the foreign exchange industry. Many of these participants are prime brokerage clients of the banks. The new aggregation service will provide the means to reduce operational risk, rationalise and consolidate legacy post trade processes and reduce post trade costs in the global FX markets.
The initial group of banks that have committed support to the joint venture are: Citigroup (NYSE:C), Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB), J.P. Morgan (NYSE:JPM) and Royal Bank of Scotland (RBS.L).
Other significant FX prime broking banks will be invited to become part of the founding group. Participating banks which are not part of the founding group will be able to participate in the service, subject to the same pricing schedule as the founding banks.
The joint venture will be a CLS subsidiary, 51% owned by CLS Group and 49% owned by ICAP, operating within the CLS regulatory framework. Technology will be provided by Traiana Inc, an ICAP company, through its Harmony Network. By closely integrating operations between CLS Bank and Traiana Inc’s Harmony Network the service will leverage existing connections that the founding banks and others have in place, to accelerate adoption and benefits to all participants. The trade aggregation service is expected, subject to regulatory approval, to be in operation in the middle of this year.
"We have a real opportunity to strengthen the Foreign Exchange market infrastructure with this new joint venture with CLS," said Mark Yallop, chief operating officer, ICAP plc. "By bringing together the leading players in the industry and a sound technology platform, we can reduce risk and increase industry capacity to create the opportunity for very material further growth in the market."
"CLS Bank is actively extending the coverage of its settlement risk elimination service – more participants, more currencies and more FX instruments," said Rob Close, chief executive officer of CLS Group and president and ceo of CLS Bank International. "Additionally the most active players in the very fast growing high frequency, low value segment have very particular pre-settlement needs. CLS Group’s new business with ICAP will contribute towards meeting these needs, which alongside the other CLS strategic initiatives on risk mitigation and efficiencies are designed to benefit the wider customer base and market."
