CLS Group:

Magyar Nemzeti Bank

Sarah Medlar
Relationship Manager CLS Services
9 October 2003
Agenda

CLS structure
CLS how it works
CLS how its working
CLS - next steps

2
 CLS Shareholders
Australia - Australia & New Zealand Banking Group * Commonwealth Bank of Australia *
National Australia Bank * Westpac Banking Corporation * Belgium- Fortis Bank * KBC
Bank * Canada - Bank of Montreal * The Bank of Nova Scotia * CIBC * Royal Bank of
Canada * The Toronto-Dominion Bank * Denmark - Danske Bank * Nordea * France - BNP
Paribas * Caisse Nationale De Credit Agricole * Credit Lyonnais * Socit Gnrale *
Germany - Bayerische Landesbank * Commerzbank * Deutsche Bank * DZ Bank *
Dresdner Bank * Hypo Vereinsbank * Westdeutsche Landesbank * Italy Banca Intesa *
UniCredito * Japan - The Bank of Tokyo-Mitsubishi, Ltd * Mizuho Corporate Bank *
Norinchukin Bank * Sumitomo Mitsui Banking Corporation * The Sumitomo Trust &
Banking Co., Ltd. * UFJ Bank * Luxembourg Dexia Banque Internationale a Luxembourg
* Netherlands - ABN AMRO Bank * ING Bank * Rabobank Nederland * Norway - Den
norske Bank *Singapore DBS Bank * Oversea-Chinese Banking Corporation * United
Overseas Bank * Spain - BBVA * Banco Popular Espanol * Banco Santander Central
Hispano* Sweden - Skandinaviska Enskilda Banken * Svenska Handelsbanken *
Switzerland - Credit Suisse * UBS * Zurcher Kantonalbank * United Kingdom - Barclays
Bank * HSBC Holdings * Royal Bank of Scotland * Standard Chartered Bank * United
States - American International Group * Bank of America * The Bank of New York * Bank
One * Bear Stearns Securities * Citibank * The Goldman Sachs Group * JPMorgan Chase *
Lehman Brothers * Mellon Bank * Merrill Lynch * Morgan Stanley & Co. * Northern Trust
Corporation * State Street Bank and Trust Co.

3
Structure
CLS Group Holdings - parent company
NY: CLS Bank International
Edge Act Bank - Lead Regulator the Federal Reserve Bank
of New York
London: CLS Services Ltd.
Facilities Management/ Operations
Tokyo: Representative office

4
 Payment/information flow pre CLS
The Problem
EUR funds
EUR agent EUR agent
Bank 1
FX-Deal Bank 2
MT 202
USD

Bank 1 EUR Bank 2

MT 202 MT300

USD agent USD agent

Bank 1 Bank 2
USD funds

5
How the world worked before CLS

2 days PLUS
6
Solving the Problem
1995 Allsopp report
Banks should review their internal control processes
Industry groups should take collective action
Central Bank measures to encourage risk reduction

led to industry initiative

1996 - Produced the CLS concept - Preferred Solution
July 1997 New company CLS Services Ltd.
Today 67 shareholders
2 September 2002 GO LIVE

7
Overlapping RTGS systems

North America

Europe

Asia/Pacific

8
CLS Settlement
How it Works
CLS Bank is a Multicurrency Bank
Holds a multi currency
account for each
Settlement Member

CLS Bank holds RTGS settlement

accounts with Central Banks

Danmarks Monetary Authority

Norges Bank Sveriges Riksbank
of Singapore
Nationalbank

Bank of England Reserve Bank of Bank of Canada European

Australia Central Bank

Bank of Japan US Federal Reserve Swiss National Bank

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How CLS Works

Submitting Funding & Funding

Instructions settlement completion

06:30 07:00 09:00 12:00

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Instructions submitted
Instructions
submitted

1
Settlement
Commences at 07.00 CET and is scheduled to complete at
09.00 CET.
Risk Management Tests applied to both Settlement
Members.
Real-time exchange of currencies i.e. CLS Bank will not
settle the trade unless both parties have the required funds
available.
Exchange is effected with finality & irrevocability for
Settlement Members over their accounts with CLS Bank
Haircut (volatility margin) applied to Settlement Members
currency balances to minimise credit risk for CLS Bank.

1
 Risk Management Tests
CLS Bank applies three tests to each Settlement Members
account before settling individual instructions or paying out
funds
Will both Settlement Members still be within the currency Short
Position Limit?
Will both Settlement Members still be within their Aggregate Short
Position Limit?
Will either Settlement Members account become negative after
settlement?
No instructions will settle if any of the six tests fail.

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Funding
CLS Central
Bank
Accounts

1
Pay-In Schedule
Multilateral net amount of Settlement Members obligations
on a given value date.
Short position currencies to be paid in over a period of 5
hours (3 hours for Asia Pacific currencies) commencing at
07.00 CET.
Long position currencies to be paid out by CLS Bank.
Includes all matched Instructions submitted by the
Settlement Member and any User Members & Customers
(3rd Parties) that the Settlement Member is sponsoring.

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Responding to the Pay-in Schedule
Short position limit 0.5 Billion Total paid
in
Pay-in
166 m 1000 m
1.0
Billion 167m 834 m
167m 667 m

250 m
500 m

250 m
250 m

CET 08:00 - 09:00 - 10:00 - 11:00 - 12:00

1
Pay-outs
Algorithm seeks to make recycle liquidity throughout the process
within risk parameters

CLS Bank checks that a Settlement Member is entitled to

receive funds, and that funds are available in the Central Bank
account before paying out

If Member has unsettled instruction, its pay-out will be adjusted

to retain sufficient value to settle irrespective of large intra-day
FX move.

No amount will be paid-out that will cause the settlement

members account to have an overall negative balance.

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Funding and Pay-out

C E T
2 :0 0
1

1
Payment & information flow under CLS
FX-Deal
USD
CLS Settlement
CLS Settlement EUR Member B
Member A

MT 300
input
Input input
Input
information Information
USD a/c USD a/c

Bank 1 Bank 2

EUR a/c EUR a/c

CLS Bank

CLS Bank
2
CLS has changed market practice
Possible same day
Normal - 2 day contract
settlement

Normal - 2 day risk CLS eliminates

Settlement risk
(temporal risk)
Historical information Real-time information

1 day funding Timed payments -

intraday requirement

Extends domestic
settlement finality
globally

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CLS Features a summary
Linked to CB (RTGS)
Finality in PVP settlement
Multilateral Netted Funding
Real Time settlement and funds flow information
Intra-day Capability
Universal: Global Shareholders/Customers
Independent (Utility)
Not a Central Counterparty
Provides Crisis Management Support

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 CLS
How its Working
CLS at September 2003

54 banks settling
live transactions
in 11 currencies

70 Third party 25 Registered

customers of Vendors using
Member banks CLS brand

Over 14 million
Settling over
sides settled in
80,000 sides and
1 year with a
over $1 trillion
gross value of
a day
over $160 trillion

2
 S id es S ettled ('000s)

2
100
120
140
160
180
200

0
20
40
60
80
12-Sep
17-Sep
20-Sep
25-Sep
30-Sep
3-O c t
8-O c t
11-O c t
16-O c t
21-O c t
24-O c t
29-O c t
1-N ov
6-N ov
9-N ov
14-N ov
19-N ov
22-N ov
27-N ov
2-D ec
5-D ec
10-D ec
CLS Volumes

13-D ec
18-D ec
23-D ec
27-D ec
2-J an
7-J an
10-J an
15-J an
20-J an
23-J an
28-J an
31-J an
5-F eb
10-F eb
13-F eb
18-F eb
21-F eb
26-F eb
3-M ar
6-M ar
11-M ar
14-M ar
Volumes

19-M ar
24-M ar
27-M ar
1-Apr
4-Apr
9-Apr
14-Apr
17-Apr
22-Apr
25-Apr
30-Apr
5-M ay
8-M ay
13-M ay
16-M ay
21-M ay
26-M ay
29-M ay
3-J un
6-J un
11-J un
16-J un
19-J un
24-J un
27-J un
2-J ul
7-J ul
10-J ul
15-J ul
18-J ul
Underlying Trades

23-J ul
28-J ul
31-J ul
5-Aug
8-Aug
13-Aug
18-Aug
21-Aug
26-Aug
29-Aug
3-Sep
Additional Sides due to Splitting
2
1000
1200
1400

200
400
600
800

0
12-Sep
17-Sep
20-Sep
25-Sep
30-Sep
3-Oct
8-Oct
11-Oct
16-Oct
21-Oct
24-Oct
29-Oct
1-Nov
6-Nov
11-Nov
14-Nov
19-Nov
22-Nov
CLS Values

27-Nov
I/O Swaps

2-Dec
Net Funding

5-Dec
10-Dec
Original Trades

13-Dec
18-Dec
23-Dec
27-Dec
2-Jan
7-Jan
10-Jan
15-Jan
20-Jan
23-Jan
28-Jan
31-Jan
5-Feb
10-Feb
13-Feb
18-Feb
21-Feb
26-Feb
3-Mar
6-Mar
Values

11-Mar
14-Mar
19-Mar
24-Mar
27-Mar
1-Apr
4-Apr
9-Apr
14-Apr
17-Apr
22-Apr
25-Apr
30-Apr
5-May
8-May
13-May
16-May
21-May
26-May
29-May
3-Jun
6-Jun
11-Jun
16-Jun
19-Jun
24-Jun
27-Jun
2-Jul
7-Jul
10-Jul
15-Jul
18-Jul
23-Jul
28-Jul
31-Jul
5-Aug
8-Aug
13-Aug
18-Aug
21-Aug
26-Aug
29-Aug
3-Sep
Net Funding
Average Values
1200 20
18
1000
16
14

Percentage Net Funding

800
12
USD billions

Requirement
600 10
8
400
6
4
200
2
0 0

In/Out Swaps Value Net Funding %

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New products and services short term
2003 Up-grades
1.14 Application and infrastructure conversion - achieved
1.15 Currency expansion, NKR, DKR, SEK and SGD now live
1.16 Matching field for Custody & CLS capacity up-grade

Further Currencies
HK and New Zealand dollar, Korean won

New Shareholders

2003/04 plan to add five and four new shareholders respectively.

SSI Database

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Planned medium term investments
Additional Settlement Window (second session)
and In/In swap

High value liquidity settlements

Information Services

Straight through processing initiatives

(including E-trading connectivity)

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CLS Bank: a unique achievement
Creates a global industry
standard
Unprecedented co-operation
across the industry
Growing number of providers
of third party services
Extends finality of domestic
RTGS settlement globally
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First global banking settlement
system
67 shareholders, 25 vendors,
11 central banks
Major business & technical
achievement
Level playing field target of
one price for all
Other CLS shareholder benefits
In / Out swaps

Future direction:
Prioritisation of product Risk profile
development / market development

plus Information
delivery / control
Involvement in
CLS Group
Governance Crisis management

Industry forum

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Other CLS shareholder benefits

CLS Bank membership

Gateway to the provision

of third party services

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CLS Benefits what our members say
Reduces error rates

Eliminates Settlement Risk

Post-Settlement Reporting

Pre-Settlement Information

Reduction or elimination of
credit (settlement) limits

Source: TowerGroup

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 Planned CLS
Market Share
CLS Market Potential (Sides per day) after 5 Years

500
Other 3rd Party
20%
350
Matching Field for Custody 50%
- Future potential
290
Other Currencies
- 2004 plans
260
Financial Institutions as 3rd Party 50%
- Very early days
100
Intra-Shareholder Transactions 90%
- Good progress

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 Questions?
www.cls-group.com