After the dust settles

The collapse of Lehman Brothers and other banks last year proved that settlement risk in the forex market has been greatly reduced. But, while operational risk managers may be giving themselves a pat on the back, there are warnings that settlement risk needs to be cut back further. By John Ferry

Last year was the biggest test yet for the foreign exchange settlement system known as CLS Bank, an industry-wide private initiative launched in 2002 that works to remove settlement risk in forex deals. Since it launched, CLS Bank has seen a steady rise in the number of trades it handles, and today settles the majority of interbank foreign exchange deals. This proved a major boon when Lehman Brothers collapsed on September 15 and traders across the world simultaneously scrambled to unwind