How does Continuous Linked Settlement (CLS) work?
When a foreign exchange deal is struck between banks, each counterparty transmits the details to CLS Bank, where they are matched and held until the settlement date. At the start of day, each Settlement Member’s net position in each currency for that day is calculated. This includes trades to be settled on behalf of User Members and Third Parties. The Settlement Member will be long in some currencies (a net receiver) and short in others (a net payer). For short currency positions a payment schedule is devised by CLS, and, by given times during the CLS day, the Settlement Member must make the payments to CLS Bank. The Settlement Member pays only net amounts. CLS Bank actually settles both sides of each trade simultaneously, thereby eliminating the normal settlement risk. Throughout the day CLS Bank will pay out the net amounts for the long currencies to Settlement Members. Settlement Members will settle separately with User Members and Third Parties their own net short and long position
