[Music] every day trillions of dollars of payment instructions are submitted to CLS settlement but how does it work on a global scale securely time and time again let's take two of cls's members and call them A and B first they each send their payment instructions to CLS settlement which are then matched A and B aren't the only two institutions Trading today though and payment instructions are continuously received and matched 24 hours a day at midnight before the start of the settlement cycle we issue an initial payin schedule so both members can review their net paying totals a&b's funding requirements are multilaterally netted down by approximately 96% and for some members further still using our additional liquidity tool inout swaps at 6:30 a.m. we issue a revised paying schedule that specifies the minimum amount that must be paid in by set times spreading the pay-ins over a number of hours minimizes the draw on liquidity at 7:00 a.m. each member begins paying the required currency amount either directly or through a nostro agent in which they hold foreign currency at other Banks the system takes each match pair of payment instructions in turn from the settlement queue and checks whether they satis satisfy the CLS settlement risk management tests using our unique payment versus payment system the relevant payment instructions are then settled simultaneously and with finality and irrevocability and the associated long balances are paid out to both members the settlement process continues until around 9:00 a.m. when the settlement of approximately 1 million payment instructions totaling an average of $6 trillion per day is complete the pay in and the payout of long balances continues until midday when each member's balance returns to zero ready for the next day's settlement [Music] cycle CLS settlement reduces risk improves efficiency and increases liquidity [Music] yes guys good to be back good to be back let's get straight to it okay so as you saw in a video um she explained the uh CLS cycle and here there are a a few different uh pictures of how the CLS settlement cycle works so uh just pause the YouTube video and see for yourself which one you prefer so let me quickly uh summarize this and before you I want to say something very important whenever your favorite trade Guru or educator says trade like the banks or trade like the central banks they don't know what the they're talking about central banks commercial Banks and financial institutions send their orders through CLS most of the orders of course they do some trade on the side but most of the orders the big orders they distribute them through CLS or they send them through CLS and CLS distribute those orders understand okay so and why do they do that well it's for the most cost effective and efficient way in order to minimize uh the risk and this their way to distribute their orders uh those orders which are are gigantic will get split to minimize the draw on liquidity otherwise you will see crazy volatile spikes in the market where most of the orders can't even get filled to begin with okay so let me quickly summarize and let's use this one okay I mean they're all the same it's just a different uh different color but it's it's the same it's the same cycle so and I quickly wanted to point out that this uh CLS cycle is run on C or CEST so Central European Time or Central European summertime okay so again whenever somebody says the algorithm is controlled in New York by New York Times to be honest I don't know if that's true is it true maybe who knows I don't know nobody knows you know definitely for my ICT guys out there I don't know I'm not saying that he is right I'm not saying that he is wrong I'm just saying that CLS yeah um they distribute their orders in those C time frames and more than 50% of all the FX yeah I'm talking about FX fore an exchange specifically more than 50% of their of the transactions go um are distributed through them so they are a very significant player that's all I'm got to say Okay so let's go over it 800 PM we have credit derivatives dtcc cash flow submission window for the next settlement day so dtcc that's a that's a whole another topic but you could compare dtcc to um dtcc is the CLS of of stocks of stocks and Futures yeah it's it's it's a it's the same type of clearing house but then for for futures and and stocks and indices and other things yeah but that's whole topic for another day at midnight we have the deadline for the unilateral resign of instructions as we can see here here we have the deadline and the initial payin schedule issued triggers In-N-Out swap processes so In-N-Out processes um I won't pay too much attent attention to them why because they're not significant why because um 5 to 7% of all the transactions of all the transactions that are going through CLS only 5 to 7% are in andout swap processes and the reason why they're not used that much is because of the the the time zone yeah at 1:15 we have the in andout swap details become available to members again don't pay too much attention to the In-N-Out swaps because they're they play a role but they are not that significant in terms of uh daily uh volume transacted okay next point the settlement preparation so the settlement preparation is from zero to to 7 let me quickly remove this perfect from 0 to 7 and at midnight we have the initial paying schedule uh that's issued triggered the In-N-Out swap processes at 6:30 C the bilateral resigned deadline the revised payin schedule and Central Bank payin reports are issued so at 6:30 the central bank payin reports yeah 6:30 the paying reports from the central banks are issued here we have the settlement process from 7 to 9 and from 7 C again going to point it out Central European Time the actual settlement process starts so it starts at 7 and the settlement completion Target is at 9 payin and payouts so pay ins and payouts happen from 7 till 12 and at 10: a.m. C the Asian Pacific funding completion Target Time pay in so at 10 you'll see that Asian countries will have priority so from this time frame from 7 till 10 Asian uh transactions will have a priority so Australian dollar New Zealand dollar a Japanese Yen Korean one they have to be uh settled and completed before 10 because at 10:25 we have the currency close for the Asian uh Pacific region at 12 C the European and North American Funding completion Target for the payments and at 13 we have the currency close and this is the whole cycle so this is the 5day business cycle from Monday through Friday that happen every day also on bank holidays on national holidays whatever CLS will always operate so I will quickly um elaborate a bit more on the payin and payouts so at 6:30 like I explained previously at 6:30 you have the bilateral resign deadline the revised payin schedule and Central Bank payin reports are issued when are they issued at 6:30 C okay so let's uh cover payin and payouts so payin a definition of a payin payin are payments that CLS participants usually Banks or financial institutions must send to CLS Bank to fund their net settlement obligation process each participant is required to calculate their net position in each currency at specific times during the day if a participant is a net player in a particular currency I.E they owe more than they are due to receive they must transfer the required amount to the CLS Bank by a specific deadline the purpose the purpose of payin is to ensure that CLS bank has the necessary funds to meet the settlement obligation across all participating currencies this process helps in managing the liquidity and ensuring that all transactions can be settled without default let's talk about payouts definition payouts are the payments that CLS Bank sends to participants representing the net amount they are due to receive after the settlement of all their transactions process after all payin have been received and the settlement process is completed CLS bank will distribute the funds to the participants based on their net position if a participant is a net receiver in a particular currency I.E they are due to receive more than they owe CLS bank will transfer the corresponding amount to their account purpose the purpose of payouts is to complete the settlement process by ensuring that all all participants receive the funds they are due in each currency so a summary of all payin and payouts process netting CLS operates on a multilateral net netting basis where the gross payments obligations between participants are netted down to a single net obligation per currency this reduces the overall amount of money that needs to be transferred enhances efficiency and reducing risk settlement once all payin are received the settlement process is initiated and the payouts are made to ensure that all participants receive their net entitlements in each currency in terms of volume net settlement systems are used more frequently because they handle a higher number of smaller transactions efficiently however for high value urgent transactions requiring immediate finality rtgs is the preferred method so let's talk about uh split orders and what they look like so the understanding CLS split large transactions into smaller blocks to ensure that they can be settled as liquidity becomes available and how does that look like boom like this this is an illustration of how one large block order let's say a transaction of 300 million split into smaller blocks that has to be fulfilled why is this important well if you pay close attention to the graph it shows how CLS distribute large orders by cutting them into smaller chunks if you are interested in Reading their intentions then I would hide suggest you study accumulations and a strong displacement out of the accumulation Zone this is one of the ways from my current understanding how price is delivered efficiently step by step order by order so you made it to the end thank you guys I appreciate it very much so so the next the next video which is part three of CLS I will cover um some very very juicy topics so make sure you like subscribe and just stay tuned because part three is going to be very interesting peace guys