Singapore banks link for CLS

DBS Bank, OCBC Bank and United Overseas Bank (UOB) developed the initiative, called Caps (clearing and payment services), to share the costs of developing a connection to CLS, which launched on September 9.

"The pressures of competition and scale force the Singaporean banks to come up with innovative ways of reducing costs," said Caps chief executive Suneil Kucchal in Singapore. "They compete in FX, but they realised there is no need to compete in the back office."

Figures for how much each bank is likely to save by jointly processing their CLS trades were not available. But, said Kucchal, "doing it in one place is certainly cheaper than doing it in three". Caps, for example, has 17 staff -- six of which are directly in operations. Had each bank developed its own processing connection, they would probably have needed at least four operations staff each, he said.

Third-party involvement

Another advantage of the joint system is for third-party banks that wish to use CLS to settle their trades (see below). Outside of Singapore, these banks must do so via a shareholder of CLS that has passed the necessary criteria to become a CLS Settlement Member. Third parties in Singapore may instead settle their trades directly through Caps, although they must be 'sponsored' by one of its three shareholders, which underwrites the trade. This means a third party's trade information is hidden from its sponsoring member, said Kucchal, a major advantage for banks concerned by the potential transparency of the third-party CLS process.

Caps may be extended to banks outside Singapore, said Kucchal. He added that the company has already been in talks with banks in Korea and Thailand about joining the service.

Another likely extension for the joint processing unit is into other products. Money markets, derivatives and government securities were some of the products Kucchal mentioned as possible additions.

The December launch of Caps precedes Singapore dollar settlement on CLS, which is planned for next year. That will add to the seven currencies currently available on CLS -- US dollar, euro, yen, sterling, Swiss franc, Australian dollar and Canadian dollar.

DBS, OCBC and UOB formed Caps in the second quarter of 2001. Kucchal joined the firm in July from ANZ Investment Bank in Melbourne, where he drove the bank's payments strategy. He has worked in a variety of roles since launching his career in the financial markets at Bank of America in India in 1980, including a stint as head of dealing at Bahrain International Bank.

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