MARKETPLACE
The CLS
Aggregation Service:
taking huge steps towards
eliminating operational risk
trade processes throughout the global FX markets. As
well as further improving the reduction of settlementThe CLS Aggregation Service, jointly built by
risk in the light of spiralling FX volumes the service willCLS Group and Traiana, an ICAP company, went
dramatically reduce the number of tickets large playerslive in January, providing trade aggregation
need to process, and reduce the back office bottlenecksservices to participants active in the over-the-
that firms had been suffering from in busy periods ascounter FX market. Frances Maguire explores
only aggregated trades will need to be processed andhow the service is heralding a new chapter in
settled in CLS, alleviating the processing burdens onoperational risk reduction and banking industry
participating banks by 90+ per cent.collaboration.
What will happen now is that the tickets will be
booked in the front office of the bank, aggregated, and
LS already successfully eliminates settlement then only one or two tickets will be sent downstream.
risk for over three quarters of inter-dealer Aggregation decisions can be made on the size ofC
trades. However, almost as soon as the the ticket.The technology is already available to
bank-owned CLS launched an industry-wide gross identify the high frequency/low value tickets or sort
settlement system in 2002, the debate began about by the source of the transactions.The focus will be
moving from gross settlement to settling ‘netted’, or on taking out the highest volumes in the post-trade,
averaged, trades, and the aggregation service has been pre-settlement space by aggregation, and those tickets
designed to address this. coming from the largest players, in the most active G7
currencies
The FX market has undergone dramatic growth
in terms of volumes traded and the expansion of The biggest requirement from the banks is that they do
its community, which now includes hedge funds, not want to be in a position where they end up with an
algorithmic traders, and retail and institutional averaged trade, independently, that does not match and
participants, many of whom are prime brokerage they need to start reconciling thousands of tickets all
clients of the banks. With FX increasingly being over again. CLS Aggregation Service will be a centralised
traded as an asset class, algorithmic traders alone can service, which will match every individual ticket, in real
post tens of thousands of trades an hour. time, and aggregate them throughout the day.
A pre-settlement service Compressing matched trades
CLS Aggregation Service is a pre-settlement service to The aggregation service operates by compressing
address operational risk issues caused by high frequency, matched FX trades by taking all trades between two
low value FX trades attributable to algorithmic trading, trading parties, that have the same buy currency from
prime brokerage and retail aggregators.This is a one party, in exchange for another sell currency to the
collective effort to re-engineer and streamline post-trade other party and then adding all the buy sides in the
processing for the fastest growth segment of the market. currency and adding all the sell sides in the currency.
The service will reduce operational risk, lower post The result of the compression are two aggregated
trade costs and rationalise and consolidate legacy post- trades that represent the cumulative amount of
|34 april 2010 e -FOREX
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