yes what's going on guys today we are going to cover CLS CLS which stands for continuous linked settlements it is um a clearing house nobody knows about them why well because the topic is very boring but it is very important and they are an extremely extremely significant player in the financial system very very important so without further Ado let's get straight to it I will cover CLS in three parts and the first part the first video is what is CLS and what does it do so let's go over it CLS which stands for continuous linked settlements is a special Financial surface that helps manage foreign exchange FX transactions it acts like a referee for currency trans making sure that both parties in a transaction get their currencies at the same time this way if one party doesn't follow through the other party isn't left holding the back in simpler terms CLS helps reduce risks in currency trading by guaranteeing that if you sell a currency you will also receive the other currency at the same time it keeps track of all trades and flags any that might be risky such as issues with liquidity or the main amount of money involved in the trade which is called the principle so why is CLS so important well the daily FX trading volume the daily volume exceeds 7.5 trillion it's ridiculous and more than 50% goes through CLS more than 50% so almost 4 trillion on average almost 4 trillion goes through CLS settlement Cycles CLS has daily settlement Cycles where it processes transactions during a 5-hour window when all necessary banking systems are open this helps make sure that payments are made correctly and efficiently eliminating credit risk CLS was created to remove credit risk and currency exchanges the two part of a currency trade uh which is called LAX and we can see that here I mean it's very simple it's just an exchange right so we have Bank a which sells their euros and Bank B which sells them their US dollars but this is all gone through CLS which is like the third the third party the referee of the transactions making sure that the currencies are delivered to each bank without um having any major risk because CLS mitigates all potential risks and the key concept for the settlement finality this means that once a payment is made it can't be reversed or cancelled even if one of the parties goes bankrupt if payment could be reversed it could lead to a financial crisis that's why CLS is so important PVP which stands for payment versus payment this means that both parties must complete their payments at the same time this eliminates the risk of one party sending their money but not receiving the other payment in return type of settlement systems rtgs which stands for Real Time gross settlements in this system every payment is processed individually through throughout the day payments are settled as they come in meaning each transaction is finalized separately today most central banks provide intraday liquidity in terms of overdraft facilities think about the repo market for example and subjects to interest and backed by collateral liquidity is therefore not free but cost interest and generate opportunity cost but when you go to the FED wire they say that and I quote this is from their white paper because the reserve banks this not only the the Federal Reserve but all central banks that work with CLS because the reserve banks have access to unlimited liquidity the reserve banks do not face liquidity risks from fedwire fund surface it's very important CLS is here to stay it's never it's not going to get away same with all these central banks they have unlimited liquidity yeah and I will go over this a little bit more later on net settlements in this system banks in all their payment requests throughout the day instead of settling each one immediately the system calculates which is done by gorithm the total amount each Bank owes or is owed and only settles those totals at specific times but interesting right guys next Point algorithm in mathematics and computer science an algorithm is a finite sequence of rigorous instructions typically used to solve a class or a specific problem or to perform a computation algorithms are used as specifications for performing calculations and data processing so two key words sequence and computation sequence which is what mean which means something that repeats again and again time computation the action of mathematical calculation Price It's Time and price but you you have heard that one before guys right next Point selling foreign exchange contracts so selling currency trades can be tricky because they usually involve two different currencies from different countries which often have different time zones for example if a Japanese Bank sells Japanese Yen and buys dollars from a US Bank the two payments can't happen at the same time because the bank are operating in different time zones and their local system may not be open at the same time settlement and funding to handle the risks involved in foreign exchange transactions CLS ensures that the currency exchange happens continuously and simultaneously during the times when all relevant payment systems are open for certain regions like a Asia Pacific this window is shorter Just 4 hours during this time CLS checks the transaction for risks before finalizing them ensuring that once a transaction is completed it can't be undone why it's important post trade processing well it's not a glamorous topic for most people clearing and settlement is not much of an interest and as a result the post trade industry is widely unknown this is the reason why CLS is unknown because it's so boring but it's important as of recent estimates CLS settles approximately 50% of the global FX transactions this translates to an average daily settled value of around 6 trillion the total daily FX trading volume globally is estimated to be around 7.5 trillion as reported by bis this significant share demonstrates the critical role of C LS in the FX markets providing a settlement service for substantial portion of the world FX transactions so this was part one of the three-part series video lecture in part two I will go over the CLS rtgs time zones uh whether it's something to implement on the charts that's for you that's on you to study but I'm here to explain the significance of it the time and price aspect because there are certain correlations and I will cover uh splitting uh split orders so part two is going to be um very important very interesting so I hope you guys going to check out part two of the three-part video lecture series and uh catch you in a bit peace