CLS bank a clearing and settlement bank for foreign exchange trading has announced that it will be increasing its transaction costs.
Another blow for forex traders as CLS bank clears over 70% of FX volumes. Typical transaction cost CLS charges are around $1.20, this could rise by 40%. CLS bank has gained popularity post Lehman crisis as it gives users guarantee of payment.
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CLS Bank settles transactions on a payment versus payment basis, also known as PVP. When a foreign exchange trade is settled, each of the two parties to the trade pays funds in one currency and receives funds in a different currency. PVP ensures that these payments and receipts happen simultaneously. CLS Bank acts as the common counterparty between all participating banks; each party is required to have the funds it is to pay out deposited with CLS Bank in the hours before settlement occurs. CLS settles payments by debiting the settling party’s accounts at CLS in the amount the party owes and simultaneously crediting the party’s account with the foreign currency amount is it to receive. Settlement generally takes place during a five-hour window when all the relevant real-time gross settlement (RTGS) systems are open and able to make and receive payments. Because the clearing occurs in advance of settlement, settlement is on a real-time net basis.
CLS Bank saw a strong month in September as number of transactions executed increased.