14:32 Nov 17, 2018
CCILCCIL > FAQ > Risk Management > CLS
1. What is Base Limit?
2. What is Early Pay-out?
3. What is Additional CLS Limit?
4. How is exposure verification done?
5. What happens if already accepted trades cause exposure limit breach?
6. What is the extent of guarantee in CLS Settlement?



1. What is Base Limit?


Base Limit for a member is the minimum limit for the member for each settlement date. Base Limit is kept separate so that the process of submission of trades to CLS Bank can continue unhindered for settlement dates other than the Settlement Date for which settlement is under progress. This limit is normally not altered and needs to be supported by collaterals. Collaterals accepted towards Base Limit are: a) Bank Guarantees b) US Dollar deposits c) Cash/Govt of India securities


2. What is Early Pay-out?


An important aspect in regard to the CLS settlement is the identical time lines decided for settlement in all participating currencies. The time lines set presently is between 7.00 hrs CET to 12.00 hrs CET. Even though it is possible to make payments in JPY or AUD at around 12.00 hrs CET for CLS settlement, it is difficult for the receiving entities to deploy such funds in the local market as by such time either the market is closed or the local RTGS is out of operation. To take care of this problem, Settlement banks normally allow pay-outs in Far Eastern currencies before the corresponding pay-ins are made, by taking credit exposures on the third party entities settling through them. Such pay-outs are termed as early pay-outs.


3. What is Additional CLS Limit?


Additional CLS Limit is a variable limit which CCIL allows to its members depending on their necessity, subject to their having adequate collaterals with CCIL. It takes care of limit requirement relating to early pay-outs. The collaterals to be used towards Additional Limits are as under: a) US Dollar Deposits b) Cash/Govt of India securities


4. How is exposure verification done?


Computation of member-wise Limit utilization is done in UBS Switzerland AG CLS Settlement system and this computation is updated online. CCIL uses the same computation for its limit monitoring. Monitoring of Additional CLS requirement is done by way of periodic evaluation of member-wise limit utilization positions (manually at pre-specified intervals). Enhancement of limit in UBS Switzerland AG CLS system is effected, whenever required, based on available collateral.


5. What happens if already accepted trades cause exposure limit breach?


It may so happen that there may be a sudden increase in Limit Utilisation by a member beyond his available limit (it can happen due to change in exchange rate or in haircut rate). CCIL may then, at its discretion, decide to unilaterally rescind the trades of such member, if the member fails to provide adequate collateral to support such increase in utilisation beyond his Base Limit. Such sudden increase in limit utilisation may also occur due to rescinding of a trade by CCIL’s member or his counterparty or due to an off-setting trade remaining unmatched at CLS till the cut off time for the settlement date. This may also be experienced due to roll over of previous day’s utilization caused by a default by the member. While rescinding any trade, CCIL takes care that, as far as possible, trades with pay-outs in JPY, NZD and AUD are not rescinded.


6. What is the extent of guarantee in CLS Settlement?


CLS settlement is not a guaranteed settlement and it only ensures that the settlement happens on a Payment Versus Payment (PVP) basis. CCIL only facilitates the CLS settlement, it neither novates nor guarantees settlement for this segment.

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