“Continuous linked settlement (CLS)”

definition

CLS, or continuous linked settlement is a cross-border payment system for the settlement of foreign exchange trades that eliminates settlement risk through a payment-versus-payment mechanism.

Standard foreign exchange transactions involve a settlement risk. As the exchange of the two currencies involved is not simultaneous, the party that sells a currency before receiving the currency purchased from the counterparty is exposed to a certain risk.

The CLS system is run by CLS Bank International, which is solely dedicated to settling foreign exchange trades. All transactions are settled through the bank in a single 5-hour window during each business day. The CLS Bank is based in New York but maintains accounts in the various countries in whose currencies it settles trades.

The CLS Bank was established in 2002 and is owned by the world’s largest banks. CLS settles payment instructions relating to FX transactions in 18 currencies as well as other transactions that create one-way payments in a subset of these currencies.