CLS – Systemically Important – And a Dark Pool?

Purple Brain

Experienced member
CLS (founded in 2002) acts as a clearing house to ensure its members are protected from settlement risk on FX transactions. Of the $5.3 trillion traded on FX each day, CLS handles $2.3 trillion.

It clears on a payment-versus-payment basis on net positions on a daily basis. So does that mean that for each of the members of CLS, their net FX transactions are physically transacted just once at the end of day? I can’t see how else it would work and still be able to offer the protection against risk of counterparty failure. But if that is the way it works, the sudden mega-transactions of almost 38% of total daily volume in one shot into the spot market would certainly put a noticeable kink in the prices, plus would involve hedging against the rates agreed and actually achieved.

Which suggests that the $2.3 trillion transacted is done off-book and effectively operates as a dark pool. I appreciate transactions between two (or more) institutional sized parties can and does get transacted through means other than the spot market where rate and size are agreed, but I’m surprised at just how much of it apparently does.

If anyone can add any some clarity to reduce my confusion I'd appreciate it.