Chicago Mercantile Exchange and Citigroup Announce New Streamlined Currency Delivery Process for CME Futures Contracts Via Continuous Linked Settlement
New Process to Provide Cost Savings, Efficiencies to Member Firms
7 July 2003, Chicago - CHICAGO, July 7, 2003 - Chicago Mercantile Exchange Inc. (CME) and Citigroup announced today that CME has appointed Citigroup Global Transaction Services to provide CME with foreign exchange settlement services through CLS Bank, allowing continuous linked settlement (CLS) of CME's foreign exchange (FX) futures transactions.
Settlement via CLS will streamline CME's quarterly currency delivery process and result in cost savings to CME clearing firms. CME's FX contracts currently are settled four times a year using a process in which orders to pay and receipt of funds are confirmed manually. Linking FX futures settlement into CLS will eliminate the need for exception processing, making it part of the mainstream FX settlement process. Firms that choose to use CLS settlement will no longer be subject to charges for an Order-To-Pay (OTP) by participating banks, and by extension, will not pay a per-contract Clearing House OTP fee.
Clearing firms may choose to use CLS settlement for their euro/U.S. dollar-denominated deliveries beginning with the September delivery. CME intends to make the CLS settlement method available for other CME foreign exchange products at a later date.
"For more than 30 years, CME has successfully managed the currency delivery process on its foreign exchange contracts - but making our delivery process more like the interbank FX delivery process that many global banks already have in place will simplify the process and result in potentially significant cost savings," said CME Chairman Terry Duffy. "This important agreement with Citibank will enable us and our firms to move to a more efficient settlement process."
"We are pleased to receive this appointment from CME and with this step have extended the CLS process into a new product space. Now, Citibank® CLS Settlement Services can provide the same efficient and virtually risk-free settlement for foreign exchange futures as it does for other FX transactions settled through CLS," said Michael Knorr, Global Product Manager for CLS Settlement, Citigroup. "Although many CME firms have direct CLS access, not everyone will be able to support their futures operations initially. CME firms who are not direct CLS members may establish a relationship with a CLS service provider, such as Citibank, to benefit from the new delivery process," he concluded.
The new CLS delivery procedure reduces the time required for the actual currency delivery to the five-hour period when central banks in the participating CLS currencies are open, compared to the current 12-hour period between the time Orders-to-Pay are sent to agent banks and the time funds are wired from customers' payment accounts to the appropriate receiving accounts. Currently, for example, the process of paying Japanese yen begins at 8 p.m. (Chicago time) on the day prior to delivery, with dollar payment for the same transaction being paid at 8 a.m. on the day of delivery.
CME expects its members to realize cost savings through the elimination of an Order-To-Pay issued by a firm's bank and CME, the ability to net money flows at the bank level, the streamlined processing - which will be similar to interbank FX transactions - and reduction of the likelihood of misrouted transactions by handling disbursement at the CLS service provider level.
Firms may select the timing of their migration to the CLS system, or may continue to use CME's current delivery procedures, which are not being eliminated.
CME's Clearing House is wholly owned by Chicago Mercantile Exchange Inc. As of March 31, 2003, the CME Clearing House acted as custodian for approximately $28.5 billion in performance bond assets deposited by its clearing firms, and during the first quarter of 2003, moved an average of approximately $1.5 billion a day in settlement funds through its clearing system. CME's Clearing House currently guarantees the performance of cleared contracts with a financial safeguards package of approximately $3.4 billion.
About CLS
Continuous Linked Settlement (CLS) is a real-time global settlement
process that reduces settlement risk caused by foreign exchange
transactions occurring across different time zones. Both sides of
a FX transaction are settled simultaneously in CLS Bank on a payment
versus payment basis.
Citibank® CLSTM Settlement Services allows financial institutions
to access the CLS settlement process, thereby enabling them to significantly
reduce settlement risk; streamline operations and gain efficiencies;
gain access to available credit and counterparties; and reduce the
cost of settlement and exception processing. Citibank clients as
third parties have been submitting and settling trades, on an unrestricted
basis, through the CLS Bank infrastructure since November 2002.
Since the launch of CLS, Citibank through its five branches (London,
Tokyo, Hong Kong, Singapore and Sydney) involved in the CLS settlement
process has settled transactions totaling over US$ 3 trillion in
value for third party clients. Citibank has over 30 client mandates
in North America, Europe, Asia and Africa, including mandates from
multiple Settlement Members pursuing third party participation in
CLS and mandates from several of the largest participants in the
FX marketplace who are not CLS Settlement Members. Citibank, with
a market share of 25 percent, is the market leader in the provision
of CLS Settlement Services for third party clients as measured by
SWIFT volume (May 2003).
About Chicago Mercantile Exchange
Chicago Mercantile Exchange Inc. (www.cme.com)
is the largest futures exchange in the United States and a premier
global exchange for trading foreign exchange futures and options
on futures. In March 2003, trading volume in CME FX futures set
a new monthly record of more than 3.1 million contracts representing
an underlying value of $319.1 billion. Average FX deliveries on
CME contracts totaled $11 billion per quarter in 2002. In addition
to FX products, CME offers futures and options on futures in interest
rates, stock indexes and commodities. The exchange brings together
buyers and sellers worldwide on its trading floors and GLOBEX® around-the-clock
electronic trading platform. CME is a wholly owned subsidiary of
Chicago Mercantile Exchange Holdings Inc. (NYSE: CME).
About Citigroup
Citigroup (NYSE: C), the preeminent global financial services company
with some 200 million customer accounts in more than 100 countries,
provides consumers, corporations, governments and institutions with
a broad range of financial products and services, including consumer
banking and credit, corporate and investment banking, insurance,
securities brokerage, and asset management. Major brand names under
Citigroup's trademark red umbrella include Citibank, CitiFinancial,
Primerica, Smith Barney, Banamex, and Travelers Life and Annuity.
Additional information may be found at: www.citigroup.com.
About Citigroup Global Transaction Services
Citigroup® Global Transaction Services is a leading provider
of integrated cash management, trade and securities services for
corporations, financial institutions, intermediaries and governments
around the world. With over $ 92 billion in average liability balances,
more than $5 trillion in assets under custody and the largest proprietary
branch network, Citigroup's award-winning operating systems and
Internet-based delivery channels enable clients to manage and monitor
working capital and investments more efficiently, streamline transaction
processing cycles, and re-engineer receivables and payment processes.
Citigroup® Global Transaction Services provides clients with
access to Citigroup's full range of capabilities and solutions along
with an on-the-ground presence and in-depth knowledge of more than
90 local markets. For additional information, see www.transactionservices.citigroup.com.
GLOBEX is a registered trademark of Chicago Mercantile Exchange
Inc. Further information about CME and its products is available
on the CME Web site at www.cme.com.
CLS and CLS Bank are trademarks of CLS UK Holdings Ltd.
SWIFT is a registered trademark of S.W.I.F.T. SCRL
