Continuous linked settlement (CLS) is a settlement system for foreign exchange trades that eliminates settlement risk. The system is run by the CLS Bank International, which is a special-purpose bank dedicated to settling foreign exchange trades. The bank and associated companies are owned by (as of 2009) seventy-three financial institutions, each of which owns an equal share in an overall holding company.
All transactions settle through the CLS Bank during a single 5-hour window each business day. The CLS Bank is based in New York but maintains accounts in the various countries whose currencies it settles trades for. Transactions are settled on a payment versus payment (PVP) basis. Each party delivers the currency it owes to the CLS Bank. That payment is not released to the counterparty unless that counterparty deposits the offsetting payment for the transaction. Multilateral netted allows each participant in continuous linked settlement to make just one net payment per currency each day.
Direct participation in continuous linked settlement is limited to the financial institutions that are shareholders of the CLS Bank. They are called settlement members. User members are institutions that are sponsored by settlement members. They can submit settlement instructions for themselves and their clients, but their transactions flow through the accounts of their sponsoring settlement members. Other parties may not submit settlement instructions directly to the CLS Bank, but they may indirectly utilize continuous linked settlement as a client of a dettlement member or User Member.