What is one of the main advantages of CLS?

The primary advantage of CLS, which stands for Continuous Linked Settlement, is the mitigation of settlement risk. Settlement risk refers to the potential for one party in a transaction to fail to deliver the currency needed to settle the transaction, which can occur in foreign exchange markets where multiple currencies are exchanged.

CLS mitigates this risk by ensuring that both sides of a transaction are settled simultaneously, thus reducing the likelihood of a transaction failing due to one party not fulfilling their part of the deal. The system operates on a payment-versus-payment (PvP) basis, which guarantees that the transfer of currency occurs at the same time for both parties involved. This increases the confidence and security of currency transactions, ultimately enhancing the stability of the foreign exchange market.

While lower fees, speed of transactions, and automation of payment processing have their own benefits, they do not directly address the critical issue of settlement risk that CLS is specifically designed to handle.