Continuous Linked Settlement Definition. Continuous Linked Settlement, or “CLS”, is a process by which a number of the world’s largest banks manage clearing and settlement of foreign exchange transactions between themselves, their customers, and other third-parties. CLS Group Holdings AG and its subsidiary companies manage the process that includes a settlement bank regulated by the Federal Reserve Bank of New York. CLS Bank provides the largest multi-currency cash settlement system, eliminating settlement risk for over half the world’s foreign exchange payment instructions. The initiative has been live since the end of 2002 and is endorsed by the G10 central banks and lead regulators. The primary objectives of CLS are to eliminate the inherent settlement risk from the current foreign currency settlement processes and to provide a mechanism for containing any systemic risk arising from the failure of a major market participant. Since it began operations, CLS has rapidly become the market-standard for foreign exchange settlement between major banks. CLS settles transactions on a “payment versus payment” basis, also known as “PVP”. PVP ensures that payments and receipts happen simultaneously between parties, thereby eliminating counter-party settlement risk, sometimes referred to as “Herstatt” risk after the name of the German that failed due to this risk exposure.
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