Hungary's OTP Bank Joins CLSSettlement to Reduce FX Risk

OTP Bank has joined CLSSettlement, a move to reduce foreign exchange risk. The Hungarian bank becomes the 75th member of the system, which processes over $7 trillion in payments daily. CLS's payment-versus-payment model reduces settlement risk, and members can unlock significant liquidity by using the multilateral netting mechanism. OTP's membership reflects its focus on building a more resilient FX operation and aligning with the best market infrastructure.

OTP Bank, one of the largest commercial banks in Hungary, has joined CLSSettlement as a settlement member, marking the second new member this year. This move brings the total number of settlement members to 75 [1].

OTP Bank's decision to join CLSSettlement is part of a broader trend among financial institutions to adopt payment-versus-payment (PvP) settlement solutions. These solutions help mitigate foreign exchange (FX) settlement risk, improve operational efficiency, and enhance liquidity [2].

CLSSettlement is recognized as the global standard in FX settlement risk mitigation, processing over $7 trillion in payment instructions daily across 18 currencies. The system's PvP model significantly reduces the risk of one side of a currency trade failing to deliver, an issue that continues to trouble regulators and market participants [2].

By joining CLSSettlement, OTP Bank aims to build a more resilient FX operation and align with the best market infrastructure. The multilateral netting mechanism used by CLSSettlement helps banks unlock significant liquidity. Members can reduce daily funding needs by up to 96%, freeing up capital for lending or trading activities [2].

OTP Bank's Managing Director of OTP Global Markets, Attila Bánfi, commented, "Mitigating FX settlement risk is a key priority for OTP Bank. Joining CLSSettlement reflects our focus on building a more resilient FX operation and aligning with the best infrastructure the market has to offer" [2].

This move also underscores the growing demand for secure and efficient settlement mechanisms among financial institutions. The trend is driven by the need to adhere to the settlement risk best practices outlined in Principle 35 of the FX Global Code [1].

References:
[1] https://www.cls-group.com/news/otp-bank-joins-clssettlement-as-a-settlement-member/
[2] https://financefeeds.com/otp-bank-joins-clssettlement-in-push-to-cut-fx-risk/