Bank of America went live on CLS's cross currency swaps settlement service, expanding its use of payment-versus-payment settlement infrastructure to reduce settlement risk across foreign exchange transactions. The move reflects intensifying efforts by major financial institutions to manage counterparty exposure and improve liquidity efficiency as global FX trading volumes continue expanding. According to the Bank for International Settlements 2025 Triennial Survey, average daily FX turnover reached approximately $9.6 trillion during April 2025, representing a 28% increase compared with the 2022 survey. CLS reported that the average daily settled value of cross currency swaps submitted into CLSSettlement increased 87% during 2025, demonstrating growing institutional adoption of safer settlement mechanisms across OTC currency markets.
Why Cross Currency Swaps Create Significant Settlement Risk
Cross currency swaps involve exchanging principal amounts and interest payments between counterparties in different currencies, often across long maturities and large notional exposures. Unlike many standard FX transactions, these swaps typically require substantial initial and final principal exchanges between institutions.
That structure creates elevated settlement risk because counterparties may transfer one side of the transaction without certainty the opposing currency payment will arrive simultaneously. The risk becomes especially important during periods of market volatility, liquidity stress, or operational disruption.
Historically, many cross currency swaps settled through gross bilateral arrangements where counterparties independently managed payment obligations across different systems and jurisdictions. That process often generated operational inefficiencies, increased liquidity requirements, and unsecured counterparty exposure.
CLS's CCS service addresses those vulnerabilities through payment-versus-payment settlement infrastructure integrated into CLSSettlement. Under the model, both sides of the currency exchange settle simultaneously, eliminating the risk that one counterparty fulfills obligations while the other fails. The service also integrates with MarkitWire's post-trade processing environment, allowing institutions to route swap settlement flows directly into CLS infrastructure.
Why Settlement Infrastructure Matters More As FX Markets Expand
The expansion of CLS's CCS platform occurs during a period of rapid growth across global foreign exchange markets. As FX market activity expands, settlement risk exposure grows proportionally, increasing pressure on regulators and policymakers to encourage broader adoption of safer settlement mechanisms across OTC currency markets.
CLS positioned growth in cross currency swap settlement as part of broader industry efforts aligned with Principle 35 of the FX Global Code, which encourages market participants to eliminate or reduce settlement risk wherever practicable. Principle 35 specifically encourages payment-versus-payment settlement mechanisms and automated netting systems to minimize the size and duration of FX settlement exposures.
The increasing focus on settlement risk reflects lessons from previous periods of financial stress where operational breakdowns and counterparty uncertainty amplified systemic instability inside global funding markets. Today, regulators increasingly treat settlement infrastructure itself as critical financial stability architecture.
How Payment-Versus-Payment Settlement Changes Liquidity Management
Beyond reducing counterparty exposure, payment-versus-payment settlement systems improve liquidity efficiency for participating institutions. CLS's cross currency swaps service allows participants to benefit from multilateral netting across FX transactions, reducing the total amount of liquidity institutions must maintain daily to settle obligations.
Bank of America emphasized liquidity efficiency as a major reason for joining the service. Carlos Fernandez-Aller, co-head of Global FICC Macro at Bank of America, stated: "In an environment of heightened market volatility and increasing intraday liquidity demands, reducing unsecured settlement risk is a priority. This milestone demonstrates our commitment to reducing counterparty risk on cross currency swap initial and final principal exchanges while delivering operational and liquidity efficiencies that will support the continued growth of our FX business."
Liquidity optimization became increasingly important as banks face higher capital costs, regulatory liquidity requirements, and rising intraday funding pressures. Institutions now manage significantly larger volumes of intraday collateral, margin obligations, and cross-border settlement activity than previous generations of market infrastructure were designed to handle.
What The Expansion Signals For Global FX Infrastructure
Bank of America's integration into CLS's CCS service reflects broader structural modernization occurring across foreign exchange market infrastructure. As global FX markets become larger, faster, and more interconnected, institutions increasingly require settlement systems capable of reducing operational friction while strengthening systemic resilience.
CLS operates payment-versus-payment systems designed to reduce principal risk across participating currencies and institutions. Lisa Danino-Lewis, Chief Growth Officer at CLS, commented: "With FX trading volumes at record levels and the average daily settled value continuing to grow, mitigating settlement risk has never been more important. The continued expansion of our CCS service, alongside Bank of America's go-live, demonstrates meaningful progress in reducing risk across the FX market."
The broader significance of the announcement lies in how post-trade infrastructure increasingly becomes central to financial stability, liquidity management, and operational resilience inside global currency markets. As FX volumes continue expanding and cross-border financial activity grows more interconnected, payment-versus-payment settlement systems serve as foundational infrastructure supporting global OTC market operations.
