UBS shines as CLS provider during turmoil
The collapse of banks in the US and Europe, led by the default of Lehman Brothers on September 15, highlighted the strengths and weaknesses of the continuous linked settlement (CLS) system. It proved it was able to eliminate Herstatt risk, but third-party CLS providers can be exposed to significant replacement and intraday funding risks at times of crisis.
Under the model, third-party CLS providers charge for taking on client positions, which are then settled on CLS. If the client defaults after
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