CLS GroupMeeting

Sarah Medlar

Relationship Manager CLS Services

Istanbul

3 October 2003

2

Agenda

CLS – structure

CLS – how it works

CLS – how it’s working

CLS - next steps

3

Structure

CLS Group Holdings - parent company

NY: CLS Bank International

Edge Act Bank - Lead Regulator the Federal Reserve Bank of New York

London: CLS Services Ltd.

Facilities Management/ Operations

Tokyo: Representative office

4

EUR agentBank 1

Bank 1

USD agentBank 1

EUR agentBank 2

Bank 2

USD agentBank 2

MT 202

MT 202

USD funds

EUR funds

MT300

FX-Deal

USD

EUR

Payment/information flow pre CLS The Problem

5

How the world worked before CLS

2 days PLUS

6

Solving the Problem

1995 Allsopp report —Banks should review their internal control processes

—Industry groups should take collective action

—Central Bank measures to encourage risk reduction

led to industry initiative

1996 - Produced the CLS concept - Preferred Solution

July 1997 New company CLS Services Ltd.

Today 67 shareholders

2 September 2002 “GO LIVE”

7

Overlapping RTGS systems

Asia/PacificAsia/Pacific

EuropeEurope

North AmericaNorth America

EuropeEurope

8

CLS Bank holds RTGS settlement accounts with Central Banks

Holds a multi currency account for each Settlement Member

CLS Bank is a Multicurrency Bank

Reserve Bank of Australia

European European Central BankCentral Bank

Swiss National BankSwiss National BankUS Federal ReserveBank of JapanBank of Japan

Bank of EnglandBank of England Bank of CanadaBank of Canada

Monetary AuthorityMonetary Authorityof Singaporeof Singapore

DanmarksDanmarksNationalbankNationalbank

Norges Bank Sveriges RiksbankSveriges Riksbank

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How CLS Works

06:30 07:00 09:00 12:00

Submitting Instructions

Funding &settlement

Fundingcompletion

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Instructions submitted

Instructions submitted

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Settlement

Commences at 07.00 CET and is scheduled to complete at 09.00 CET.

Risk Management Tests applied to both Settlement Members.

Real-time exchange of currencies i.e. CLS Bank will not settle the trade unless both parties have the required funds available.

Exchange is effected with finality & irrevocability for Settlement Members over their accounts with CLS Bank

Haircut (volatility margin) applied to Settlement Member’s currency balances to minimise credit risk for CLS Bank.

12

Risk Management Tests

CLS Bank applies three tests to each Settlement Member’s account before settling individual instructions or paying out funds

– Will both Settlement Members still be within the currency Short Position Limit?

– Will both Settlement Members still be within their Aggregate Short Position Limit?

– Will either Settlement Member’s account become negative after settlement?

No instructions will settle if any of the six tests fail.

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FundingCLS Central

Bank Accounts

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Pay-In Schedule

Multilateral net amount of Settlement Member’s obligations on a given value date.

Short position currencies to be paid in over a period of 5 hours (3 hours for Asia Pacific currencies) commencing at 07.00 CET.

Long position currencies to be paid out by CLS Bank.

Includes all matched Instructions submitted by the Settlement Member and any User Members & Customers (3rd Parties) that the Settlement Member is sponsoring.

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Short position limit € 0.5 Billion

09:00 - 10:00 - 11:00 -08:00 - 12:00CET

Pay-in

€ 1.0 Billion

Total paid in

€ 250 m€ 500 m

€ 166 m € 1000 m

Responding to the Pay-in Schedule

€ 167m € 667 m

€ 834 m€ 167m

€ 250 m€ 250 m

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Algorithm seeks to make recycle liquidity throughout the process within risk parameters

CLS Bank checks that a Settlement Member is entitled to receive funds, and that funds are available in the Central Bank account before paying out

If Member has unsettled instruction, its pay-out will be adjusted to retain sufficient value to settle irrespective of large intra-day FX move.

No amount will be paid-out that will cause the settlement member’s account to have an overall negative balance.

Pay-outs

17

C

12:00 CET12:00 CET

Funding and Pay-out

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FX-DealUSD

EUR

MT 300

information

CLS Bank

USD a/c USD a/c

Bank 1 Bank 2

EUR a/c EUR a/c

InformationInput Inputinput input

CLS BankCLS Bank

CLS Settlement CLS Settlement Member BMember BCLS Settlement CLS Settlement

Member AMember A

Payment & information flow under CLS

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CLS Features – a summary

Linked to CB (RTGS)

Finality in PVP settlement

Multilateral Netted Funding

Real Time settlement and funds flow information

Intra-day Capability

Universal: Global Shareholders/Customers

Independent (Utility)

Not a Central Counterparty

Provides Crisis Management Support

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Other CLS shareholder benefits

CLS Bank membershipCLS Bank membership

Gateway to the provision Gateway to the provision of third party servicesof third party services

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Questions?

www.cls-group.com