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CLS Process

CCIL settles the CLS trades of its members by becoming a third party settlement agency to UBS Switzerland AG. To take care of the risks arising out of this arrangement, Settlement Banks usually set limits for all entities settling through them.

As a settlement agency, CCIL does not take any clean exposure on its members. Risk management processes at CCIL are therefore designed in such a way that CCIL’s exposure on a member on account of the outstanding CLS trades of the member is covered through collateral or bank guarantees. The risk is monitored by setting Exposure Limits for members, which are arrived at on the basis of the collaterals deposited.

CCIL sets two types of limits for a member (both denominated in US Dollars).

• Base CLS Limit – Minimum limit for each settlement date
• Additional CLS Limit - Only for specified settlement date

Total Limit for a member for a settlement date is equal to the sum of the Base CLS Limit and the Additional CLS Limit. Exposure Limit utilization monitoring is on-line and system driven. A member’s exposure in any currency is marked to market daily and is further adjusted for the currency fluctuation factor by way of a distinct hair-cut rate for each currency.

Hair-Cut i.e. Currency Fluctuation Factor for each currency pair of FCY/USD is set by CCIL such that highest movement (upward/downward) over a 2 day period observed in the respective currencies against USD is fully covered. Hair-Cut rates on CLS currency pairs are also stepped up for entities with lower counterparty risk assessment (CPRA) grade i.e. In addition, as part of Credit Risk Monitoring process, in the event of deterioration in financial position/ Regulatory action/ sudden adverse developments in respect of any member, CCIL may step up the haircut rates of currencies for such members.