Banks go live with $2,000bn trading platform

The world's first global banking settlement system has gone live after five years of development.

The world's first global banking settlement system has gone live after five years of development.

The CLS (Continuous Linked Settlement) system will revolutionise the $2,000bn (£1,280bn) a day global foreign exchange trading system, reducing settlement times from two days to just five hours.

The platform will reduce in risk from delays in settlements, streamline back office operations and allow banks a real time view of their trading position. Thirty-nine of the world's leading financial institutions have started using the system, which will be extended to their customers by the end of the year.

Joseph De Feo, chief executive of CLS Group Holdings, which runs the system, said, "The benefits in the reduction of global foreign exchange risk and the commercial costs could not be more timely."

The traditional foreign exchange trading system relied on bank-to-bank deals, with a single trade taking up to 48 hours to complete because of different time zones and the lack of central systems.

The new simultaneous settlement system will dramatically reduce the risks that banks face during prolonged transactions, which can involve hundreds of millions of pounds.

The system also cuts the strain on back office functions by reducing the number of payment instructions each bank has to make by more than 90%, according to a CLS spokesman.

"In the past banks had to submit individual instruction for each trade. The new system aggregates payments. Where a bank once issued 1,000 payments for 1,000 trades, the new system reduces that to a handful of payments each day," he said.

The system also offers cost savings on liquidity management, with banks having a near-real time view of their trading position. "This allows more efficient utilisation of capital," the CLS spokesman added.

All this comes at a price. The CLS System's 39 founding shareholders have invested almost £200m in developing the system and banks face a further £5m to £10m implementation costs according to Daniel Mayo, lead analyst in the financial services group at analyst firm Datamonitor.

The system was due to go live in 2000 and then in 2001, but was delayed as member banks and central banks thrashed out agreed standards. The US Federal Reserve finally gave the go-ahead last week.

IBM developed the technology platform using Unix server clusters. The two mirrored sites and a third backup implementation are based on clusters of IBM P-Series servers running Advanced IBM Unix.

The system runs IBM DB2 databases and Shark enterprise storage servers. Middleware has been adapted from IBM's Websphere product with Tivoli software responsible for systems management.

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