CLS: a slow adopter, sticking fast

While the glacial pace of adopting new currencies onto the system has kept costs uncomfortably high, it is wise for the organisation to take a legalistic approach to dotting its i’s and crossing its t’s. Alternative settlement systems have taken advantage of the gaps, setting up between Hong Kong and Malaysia for example, but the high standards demanded by CLS have given it an aura of respectability and authority that makes it seem like part of the furniture.

The system’s persistence in courting BoC also shows that it is not averse to expanding when it judges the time is right.

This will make it unlikely that new entrants such as FX MarketSpace will put the long-term viability of CLS under threat. At first sight it looked as though the centrally cleared nature of the Reuters/CME joint venture might seriously loosen CLS’s grip on the market. However, while elements of the model do replicate CLS’s settlement function, it is likely that the new entity will occupy a relatively small part of the increasingly crowded interbank market-place.

CLS is like a trusty family car that may guzzle a lot of gas and take a while to get from 0 to 60. It may not deliver a comfortable ride but it can fit Mum, Dad, the two kids and two weeks worth of luggage.

The design of MarketSpace has yet to be revealed, but those involved in its design should realise that it will be hard to attract such a heavy load.

However, with Reuters and CME powering it, FX MarketSpace has every chance of delivering a high-quality service to a targeted part of the market. Maybe then it will be more like the Aston Martin rolled out for a weekend spin than the everyday Volvo estate used for every day family life.