CLS announced in early December that it had extended its services to cover the net proceeds of non-deliverable forward (NDF) trades. The service has gone live with six member banks and one third-party customer and it will cover 48 reference currencies. Proceeds will be settled in any of the existing 15 CLS settlement currencies.
According to CLS, the number of banks using the service is expected to expand in the first quarter. The addition of NDFs marks a new phase in CLS’s evolution as the benefits are more from an operational standpoint than a mitigation of settlement risk. CLS says it costs at least $20 a trade to process NDF deals, but by bringing in a new level of standardization, as well as process automation, CLS expects this to fall as low as $2.
Andy Aschwanden, vice-president of custody & transaction services at Credit Suisse, agrees. "I think there will be significant efficiency gains for back offices. NDF confirmation and settlement processes are currently cumbersome and there is a lack of conformity even among the bigger players. This is limiting industry progress."
According to CLS, its latest initiative brings a new level of standardization of the NDF market.