CLS Group Raises £160M to Help Meet Its Expected Regulatory Capital Increases

The largest mitigator of FX Settlement risk, CLS Group (CLS), today announced the successful completion of an equity capital raise for a net amount of £160 million, according to its official corporate press release.

This new amount will enable the firm to comply with increased regulatory capital requirements, meet operational needs and establish an appropriate capital structure to benefit from future growth in the global FX market, as described in the announcement.

As an integral provider of the Foreign Exchange market infrastructure with regards to enhancing financial stability by providing risk mitigation services, CLS group was originally launched in 2002, and operates the largest multi-currency cash settlement system globally to mitigate settlement risk for its shareholders, members and third-party participants in the FX market.

Since the inception of CLS, daily turnover in the global FX market has increased from USD 1.2 trillion to USD 5.3 trillion, according to data from the Bank for International Settlements. During this period, it was noted in the announcement that CLS has achieved a compound annual growth rate of 31.4% in average daily volume.

A Call for Increased Capital Ratios

In April 2012, the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements and the Technical Committee of the International Organization of Securities Commissions (IOSCO) issued the final version of its Principles for Financial Market Infrastructures (PFMIs), as noted in the press release today.

The PFMIs contain new and more demanding international standards for payment and settlement systems (some 24 principles in total), in order to help ensure that the infrastructure supporting global financial markets is more robust and well-placed to withstand financial shocks.

Accordingly, the PFMIs have been adopted by regulators in certain jurisdictions in which CLS is designated and are expected to be adopted in the remaining jurisdictions, as per the press release.

Following today's successful funding of £160 million, CLS has increased its capital to meet the new capital standards of the PFMIs in the expectation that they will be fully adopted. Helping to facilitate the raising of the capital, J.P. Morgan acted as financial adviser and Niederer Kraft & Frey acted as legal adviser to CLS.

Shareholders Funding

Some of the future benefits mentioned resulting from the increased capitalization are; the capital raise will enable CLS to restructure its balance sheet, invest in technology to enhance operational capability and develop new products and services for the benefit of its members and shareholders.

Commenting in the official corporate press release today about the equity funding, Gerard Hartsink, Chairman of CLS said, "We are grateful to our Shareholders for their continuing support of CLS. We have a unique Shareholder, membership and governance model and are delighted that Shareholders globally have demonstrated their strong support for our business. With our strengthened financial position, we look forward to continuing to fulfill our mission of enhancing financial stability by providing risk mitigation services to the global FX market, for the benefit of our Members and Shareholders."

Also commenting in the official announcement from the company's management, David Puth, CEO of CLS said,"We would like to thank our Members for their capital commitments, which demonstrate their confidence in our business and the importance of the cost efficient services we provide. CLS has proven itself to be critical to the orderly functioning of the global FX market and this capital raise will enable us to comply with increased capital requirements."

Mr. Puth added in the press release, "CLS is now well placed as the global leader in FX settlement risk mitigation services to benefit from growth in the largest and fastest growing financial market. In addition, we are able to continue investing in technology, and new products and services for the benefit of our Members and Shareholders worldwide."

Mr. Puth spoke on a panel just last month pertaining to the issues brought under highlight by the PFMI, during the 35th annual Sibos meeting which took place in Dubai, organized by SWIFT. According to its FXFundamental newsletter, issued in November, during the above mentioned panel, Mr. Puth shared his views on the subject and it was noted that CLS must comply with 19 of the 24 principles under the PFMI.

Further Standardization on the Horizon

In the November newsletter from CLS, Regulation was noted as a hot topic at Sibos and according to panelists, a transparent market infrastructure increases reliability and efficiency, while a lack of harmonization in international rules drives up costs, creating opportunities for regulatory arbitrage.

Today's news follows the announcement from CLS last week of Hirochika Iwadare's appointment to the CLS Group Holdings Board of Directors at an Extraordinary General Meeting of Shareholders held on Monday, November 4, 2013, in Zurich (just a few days after the CLS Hong Kong Office opened), and following a small decline in November volumes.