In the first CLS third-party mandate to be awarded in Macau, Standard Chartered has been appointed to settle Seng Heng Bank's forex trades using the intra-day payment-versus-payment settlement system. The duo expects to go live with their first CLS trade by the end of this month.
Seng Heng Bank is an active forex trader in the Hong Kong interbank market and, says Patrick Huen, the bank's chief executive officer, the link will bring substantial risk management benefits to its forex trade settlement.
"It will also help us to manage our forex settlement exposure," says Huen. "We are now in the process of implementing the system, working closely with Standard Chartered which has provided us with invaluable on-the-ground support and advice."
The deal shows a growing interest in the benefits of CLS among the region's domestic banks which are being encouraged to link up with CLS by signing third party agreements. Standard Chartered is one of about 50 global banks which form the CLS network and it, like others, offers a third party connection to the real-time global settlement system.
So far, the rate of third party adoption has been slow as banks have taken a wait and see approach. Since most Asian currencies are not yet eligible for CLS settlement, domestic banks haven't had the eligible trade volume to justify a link. Though the Hong Kong dollar is one of the next currencies to be accepted into the CLS family, which undoubtedly explains why Seng Heng has struck its deal with Standard Chartered.
Margaret Lee, Standard Chartered's head of financial institutions for greater China, says the bank offers third parties a browser-based iCLS platform so that clients can receive real-time information on their forex positions, initiate forex trade confirmations, monitor the status of trades, and track and anticipate liquidity requirements.
"The iCLS module is part of Web Bank, a single sign-on internet banking platform for Standard Chartered's wholesale banking customers," says Lee.
