Continuous Linked Settlement Bank (CLS), launched in 2002 to eliminate counterparty risk from foreign exchange (FX) transactions, and which currently settles on average more than $3000bn each day in FX-related payment obligations, has been hailed as the biggest single mitigator of the systemic risk arising from the settlement of FX trades, as identified by the G10 central banks in 1996. But according to an April 2006 survey prepared for the Committee of Payment and Settlement Systems (CPSS), in which the industry's progress during the past 10 years was examined, there are some significant gaps in the system, with just 55% of FX transactions actually settled through CLS. This begs the question, how much risk prevails in the system, and how are the outstanding transactions settled?
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