The Group of Twenty (G-20) banks met in mid-June and sketched out broad outlines of their plans to settle the world's foreign exchange (forex) operations in a single institution called the Continuous Linked Settlement Bank. Among the plans: absorb the Multinet and ECHO netting operations and include the G-40 bankso50 institutions engaged in forex operations that are slightly smaller than the G-20 banksoin the London-based venture, now called CLS Services Ltd. "The sense of the combined group is that there ought to be a way to coordinate the development of both multilateral netting and CLS services in a way that's good for the banking industry," says Larry Recknagle, president of Multinet. CLS Services will develop the institution. Work has already begun, including discussions with hardware vendors, some of which Robert Close, the CLS's Coventry-based operations chief, says are "the computer manufacturers you'd expect us to be speaking with." Only a few companies have the capacity to develop the massive computer systems that the CLS will need to settle the world's $2.6 trillion in daily currency exchanges. The G-20 banks will initially own all the shares in the institution and will sell some to G-40 banks after it opens for business. Finn Otto Hansen, chairman of the G-40, says plans to create the CLS are being actively negotiated. "We are currently in discussions with the G-20 and expect to sign an agreement (to create) a common banking infrastructure," he says. "The G-40's opinion is that we should leverage on the investments of the multilateral netting schemes so that banks can choose between netting and real time gross settlement solutions. We and the G-20 are in principle agreement, although there may be some differences in valuing the benefits of multilateral netting." Left unaddressed was the future of London-based FXNet, the largest bilateral netting scheme. FXNet chief Peter Bartko says that he "didn't know" how the discussions would affect him, but CLS's Close says, "The banks around the table all own FXNet; it's everyone's intention to get them involved. The concern was not to have too many parties at the table because it's already complicated enough." -reinbach tfn.com
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