Overcoming settlement and liquidity challenges for peer-to-peer FX transactions

For almost two decades, FX businesses have faced a growing problem: transaction volumes have continued to rise, margins have been compressed & operational processes have remained inefficient.

As well as increasing operational costs, capital requirements and funding costs, this situation presents firms with significant settlement risks – an $8.9-trillion a day problem according to the BIS Quarterly Review. Even CLS is only able to resolve settlement risk for a limited subset of participants and currency pairs – and is reliant on an operational cycle that creates downtime on liquidity. Outside the CLS-eligible currencies, the processes involved incur significant settlement risks, operational costs, and capital and liquidity charges.

“BIS estimates that $8.9 trillion of payment obligations are at risk on any given day.”

Market participants also have to contend with strict cutoff times for payments and uncertainty about the timing of inbound receipts – all while managing accounts to reduce excess balances and avoid overdraft fees.

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