FX settlement system CLS may tweak deadline to avoid US equity market rule disruption
By Laura Matthews
NEW YORK (Reuters) — A U.S. regulatory change to stock market transactions has financial infrastructure system CLS exploring delaying settlement instructions for foreign exchange trades, a move requested by foreign asset managers who use currency trades to fund their U.S. securities transactions.
These investors face the prospect of more FX settlement failures starting May 28, 2024. In February, the U.S. Securities and Exchange Commission ruled that from that day, investors must settle equity transactions one day after the trade (T+1).
Currency trades funding securities transactions currently settle in two days. Investors must change their methods so those trades are not left out of CLS, the largest multi-currency settlement system for FX trades. Parties to trades would have to settle them bilaterally if they are excluded from CLS, which is owned by major players in the FX market such as Wall Street and international banks.
The SEC's move is aimed at reducing market risk, an area of focus since the GameStop Corp (NYSE:GME) trading frenzy.
«The stability of the financial system and the wider FX ecosystem must always come first,» said Marc Bayle de Jessé, chief executive officer at CLS, in a recent interview with Reuters. «But we are willing to liaise with regulators and settlement members to explore possible solutions to see if we can help.»
The new regulations could affect nearly $65 billion per day worth of foreign exchange transactions from asset managers at risk of missing CLS's crucial deadline, according to an estimate by Bayle de Jessé.
CLS is assessing whether its CLSSettlement services can accommodate later submissions, he said, and is investigating whether moving its 00:00 CET (midnight)
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