Post by Sapphire Capital on Jul 13, 2008 3:43:15 GMT 4
CLS Bank International Rules
(September 10, 2007)
Extracts relating to Eligibility Criteria
for Membership and Currencies in the CLS System
© 2007 CLS Bank International
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2 MEMBERSHIP
2.1 SETTLEMENT MEMBERSHIP
2.1.1 Settlement Membership Criteria
Only an applicant that satisfies each of the following criteria may be approved as a Settlement Member of
CLS Bank:1
(a) CLS Group Holdings Shareholder. The applicant is a CLS Group Holdings Shareholder or
an Affiliate of a CLS Group Holdings Shareholder.
(b) Restriction on Affiliates. The applicant is not an Affiliate of a Settlement Member (unless
such Settlement Member’s Termination Time is prior to the effective date of the applicant’s
membership with CLS Bank).
(c) Bank, U.S. Broker-Dealer, or U.K. Investment Firm; Financial Institution Requirement.
The applicant:
(i) either:
(A) is a bank or trust company, subject to prudential supervision by a
governmental authority acceptable to CLS Bank;
(B) is a broker or dealer registered under the U.S. Securities and Exchange
Act of 1934;
(C) is an investment firm (as defined in point 2 of Article 1 of Council
Directive 93/22/EC of 10th May, 1993 on investment services in the securities
field) which carries on a regulated activity in the United Kingdom for the purposes
of the Financial Services and Markets Act of 2000 but which is not a EEA firm or
a Treaty firm (as those terms are used in that Act) qualifying for authorization
under Schedules 3 and 4, respectively, to that Act; or
(D) does not qualify under paragraphs (A), (B) or (C) above, but has
demonstrated to the Board of Directors that its business and capabilities permit it
to use CLS Bank’s services without undue risk to CLS Bank, its Members or CLS
Services and is subject to prudential supervision by an authority acceptable to
CLS Bank; and
1 Once approved as a Member of CLS Bank, the institution is also required to satisfy these requirements on a continuing basis.
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(ii) is a “financial institution” within the meaning of 12 U.S.C. §4402 and a
“participant” within the meaning of the Settlement Finality Regulations.
(d) No Special Factors; Adequate Resources and Capabilities
(i) CLS Bank shall have received no information that would reasonably be seen to
adversely reflect on the present or prospective business, operations, management or
financial condition, operational capabilities or applicable regulatory supervision or
requirements of, or access to liquidity in respect of, the applicant, including the financial
ability of the applicant to satisfy its obligations under Rule 9, to such an extent that the
applicant should be denied membership in CLS Bank; and
(ii) the applicant shall not have business practices, internal risk management
controls or any other factor or condition that would create undue risk for CLS Bank, its
Members or CLS Services.
(e) Operating Capability. The applicant shall execute a testing and trialing agreement
substantially in the form set forth in Exhibit 2-A to the Member Handbook and, pursuant thereto,
satisfy such minimum operating capabilities as may be established from time to time by CLS Bank,
including:
(i) an ability to submit Instructions, Amend Instructions and Rescind Instructions
(and, to the extent applicable, NDF Valuation Instructions) to CLS Services through the
Submission Process, including (A) satisfying trials involving submission, matching and
Settlement of Instructions with respect to each Submission Location, applicable Pay-Ins
and Pay-Outs (as more particularly set forth in operational trialing protocols for Settlement
Members) and (B) demonstrating that a Submission Location (and subsequently any
additional requested Submission Location) operates effectively before any additional
Submission Location may be introduced;
(ii) an ability to satisfy operationally, directly or through its applicable Nostro Agent,
the requirements necessary to deliver funds in each Eligible Currency to CLS Bank within
specified times so as to satisfy the Pay-In requirements described in Rule 6;
(iii) adequate contingency plans in the event of its inability, or any of its Nostro
Agents’ inability, to satisfy the funding requirements described in paragraph (ii) above;
(iv) adequate contingency plans for maintaining its operational capabilities if a natural
disaster, operational or technical failure, or other extraordinary event occurs; and
(v) appropriate procedures and contingencies for the effective operation and
management of its Control Function, including the ability to effectively operate and
manage any existing or new Control Function Gateway or Submission Location and
manage applicable Static Data.
(f) Financial Requirements
(i) Minimum Capital and Capital Ratio Requirements. An applicant must maintain
capital equal to or in excess of the capital and capital ratio requirements imposed from
time to time by its primary regulator.
(A) In the case of banks and trust companies (described in
Rule 2.1.1(c)(i)(A)), such minimum capital and capital ratio requirements will be
those determined in accordance with the home country regulatory authorities of
the Head or Home Office of the applicant; provided, however, that such
requirements must be consistent with the guidelines established by the Bank for
International Settlement (BIS).
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(B) In the case of U.S. broker-dealers (described in Rule 2.1.1(c)(i)(B)),
such minimum capital and capital ratio requirements will be those determined by
the Securities and Exchange Commission.
(C) In the case of U.K. investment firms (described in Rule 2.1.1(c)(i)(C)),
such minimum capital and capital ratio requirements will be those determined by
the U.K. Financial Services Authority.
If an applicant is not subject to any of the requirements described in paragraphs (A)
through (C) above, CLS Bank may require that the applicant comply with capital and
capital ratio requirements that exceed those imposed by the applicant’s primary regulator
if CLS Bank determines, in its reasonable discretion, that the capital and capital ratio
requirements imposed by the applicant’s primary regulator are less than those described
in paragraphs (A) through (C) above and such excess capital or capital ratio requirement
is reasonably necessary for the protection of CLS Bank and its Members.
(ii) Minimum Short-Term Credit Rating Criteria
(A) If an applicant has a public short-term rating (consisting of short-term
debt or deposit ratings) from any Rating Agency,2 evidence of such rating shall
be submitted to CLS Bank as part of the application process.
(B) If an applicant does not have a public short-term rating from at least one
Rating Agency, the applicant must submit to CLS Bank either:
(1) a guarantee from the Parent-Company Guarantor of the
applicant acceptable to CLS Bank, an opinion of counsel satisfactory to
CLS Bank in form and content and addressing such other matters as
CLS Bank may specify, and evidence of the Parent-Company
Guarantor’s public short-term rating (consisting of short-term debt or
deposit ratings) issued by a Rating Agency; or
(2) written confirmation of a private short-term rating of the
applicant (consisting of short-term debt or deposit ratings) issued by a
Rating Agency and the basis upon which such private rating was
issued.
(C) CLS Bank will determine its internal short-term rating of the applicant
based on the following criteria:
2 Fitch, Moody’s or S&P (or any other rating agency specified by CLS Bank in the CLS Bank International Member Handbook).
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(1) If two or more Rating Agencies provide equivalent short-term
ratings for an applicant, CLS Bank’s internal short-term rating for the
applicant shall be based on such ratings; if all such Rating Agencies do
not provide equivalent short-term ratings, then CLS Bank’s internal
short-term rating shall be based on the lowest rating.
(2) If an applicant is only rated for short-term ratings by one Rating
Agency, CLS Bank’s internal short-term rating for the applicant shall be
based on the one short-term rating.
(3) If an applicant is not rated for short-term ratings by any Rating
Agency, CLS Bank’s internal short-term rating shall be based on the
rating of its Parent-Company Guarantor (in which case the methodology
set forth in clauses (1) and (2) above shall apply) or the private rating
provided to CLS Bank as described in Rule 2.1.1(f)(ii)(B)(2).
For the purposes of determining its internal short-term rating for an applicant,
CLS Bank may adjust the short-term rating arrived at pursuant to clauses (1), (2)
or (3) above, as applicable, by raising or lowering such rating based upon all
information available to CLS Bank, including the ratings outlook for the applicant
published by any of the Rating Agencies and any credit reports of the applicant.
(D) No applicant will be eligible for membership if:
(1) in the case of an applicant that CLS Bank has assigned an
internal long-term rating that is at or above S&P BBB- (or equivalent)
(or, if applicable, to its Parent-Company Guarantor that is at or above
S&P BBB (or equivalent)) as described in Rule 2.1.1(f)(iii), CLS Bank
assigns an internal short-term rating to the applicant that is less than
S&P A-3 (or equivalent) (or, if applicable, to its Parent-Company
Guarantor that is less than S&P A-2 (or equivalent)); or
(2) in the case of an applicant that CLS Bank has assigned an
internal long-term rating that is less than S&P BBB- (or equivalent) (or, if
applicable, to its Parent-Company Guarantor that is less than S&P BBB
(or equivalent)) as described in Rule 2.1.1(f)(iii), CLS Bank assigns an
internal short-term rating to the applicant that is less than S&P B (or
equivalent) (or, if applicable, to its Parent-Company Guarantor that is
less than S&P A-3 (or equivalent)).
(iii) Minimum Long-Term Credit Rating Criteria
(A) If an applicant (and, if applicable, its Parent-Company Guarantor) has a
long-term rating from any of the Rating Agencies, evidence of such rating shall
be submitted to CLS Bank as part of the application process. If an applicant (or,
if applicable, its Parent-Company Guarantor) does not have a long-term rating
from at least one of the Rating Agencies, CLS Bank shall conduct an internal risk
analysis to assign a long-term rating to the applicant (or, if applicable, its Parent-
Company Guarantor).
The internal risk analysis may be based on, among other things, (1) the public
ratings of the applicant’s (and, if applicable, its Parent-Company Guarantor’s)
asset-backed securities, applicable derivative instruments or other financial
products; (2) the credit reports of the applicant (and, if applicable, the Parent-
Company Guarantor’s); and (3) details of internal risk ratings from Settlement
Members (or applicants proposing to be Settlement Members) with foreign
exchange trading relationships with such applicant (and, if applicable, the Parent-
Company Guarantor), and the applicant hereby agrees to the disclosure of these
internal risk ratings and related information from Settlement Members or
applicants, as the case may be.
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(B) CLS Bank will determine its internal long-term rating of the applicant
based on the following criteria:
(1) If the applicant is rated for long-term ratings by two or more of
the Rating Agencies, then CLS Bank’s internal long-term rating of the
applicant shall be based on the lowest rating.
(2) If an applicant is only rated for long-term ratings by one Rating
Agency, CLS Bank’s internal long-term rating for the applicant shall be
based on the one long-term rating.
For the purposes of determining its internal long-term rating for an applicant, CLS
Bank may adjust the applicant’s long-term rating arrived at pursuant to clauses
(1) or (2) above, as applicable, by raising or lowering such rating based upon all
information available to CLS Bank, including the ratings outlook for the applicant
published by any of the Rating Agencies and any credit reports of the applicant.
(C) No applicant will be eligible for membership if:
(1) CLS Bank assigns an internal long-term rating to the applicant
that is less than S&P BBB- (or equivalent) (or, if applicable, to its
Parent-Company Guarantor that is less than S&P BBB (or equivalent)),
except as otherwise permitted by clause (2) below;
(2) CLS Bank assigns an internal long-term rating to the applicant
that is less than S&P BB- (or equivalent) (or, if applicable, to its Parent-
Company Guarantor that is less than S&P BB (or equivalent)); provided,
however, that this clause (2) shall only apply to an applicant if CLS Bank
determined that such internal long-term rating of the applicant is
constrained by a non-investment grade credit rating (i.e., less than S&P
BBB- (or equivalent)) assigned to the sovereign of the jurisdiction in
which the Head or Home Office of the applicant is located; or
(3) CLS Bank is not able to assign an internal long-term rating to
the applicant (or, if applicable, its Parent-Company Guarantor) after
conducting an internal risk analysis as described in paragraph (A)
above.
For purposes of clause (2) above, the sovereign credit rating shall be the lower of
the foreign currency or local currency sovereign credit rating, determined by
reference to such ratings issued by any of the Rating Agencies to the sovereign.
(iv) Minimum Stand-Alone Credit Rating Criteria.
(A) If an applicant (or, if applicable, its Parent-Company Guarantor) has any
Stand-Alone Credit Rating , evidence of such ratings shall be submitted to CLS
Bank as part of the application process.
(B) If CLS Bank has assigned an internal long-term rating to the applicant
that is less than S&P BBB- (or equivalent) (or, if applicable, to its Parent-
Company Guarantor that is less than S&P BBB (or equivalent)), the applicant will
not be eligible for membership if the Stand-Alone Credit Rating of the applicant is
less than Moody’s D+ (or equivalent) (or, if applicable, of the Parent-Company
Guarantor is less than Moody’s C- (or equivalent)).
(v) Enhancements. In the case of an applicant that CLS Bank has assigned an
internal long-term rating that is less than S&P BBB- (or equivalent), CLS Bank may, but
shall not be obligated to, subject the applicant to additional financial or credit related
requirement(s) that CLS Bank may identify in Chapter 2 of the Member Handbook.
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(vi) Financial Statements. The applicant must furnish to CLS Bank the following:
(A) a copy of its annual financial statements (and, if a Guarantee has been
provided, the annual financial statements on a consolidated basis of (1) the
applicant and (2) its Parent-Company Guarantor) for the three fiscal years ending
immediately preceding the year in which the application is submitted to CLS
Bank (or, if the applicant or its Parent-Company Guarantor has been in existence
for less than three years, such financial statements as CLS Bank may require),
each certified by its independent certified public accountants (or equivalent); and
(B) all publicly-issued financial statements of the applicant (and, if
applicable, of its Parent-Company Guarantor) covering the period between the
most recent annual financial statements furnished to CLS Bank and the date the
application described in Rule 2.1.2(b) is submitted to CLS Bank.
To the extent that such audited financial statements are not prepared in accordance with
generally accepted accounting principles (as in effect in the jurisdiction of the Head or
Home Office of the applicant or its Parent-Company Guarantor, as applicable), the
applicant shall provide CLS Bank with a discussion of the material variations of such
accounting principles from generally accepted accounting principles.
(vii) Certificate. The applicant must furnish a certificate of the chief executive or chief
financial officer (or other authorized person acceptable to CLS Bank) of the applicant that
no material adverse changes have occurred in the financial condition of the applicant
since the date of the most recent financial statements provided to CLS Bank, and that the
applicant is not subject to any material contingent liabilities, except as set forth in such
financial statements.
(viii) Regulatory Filings. The applicant must furnish copies of such relevant and
material regulatory filings as CLS Bank may reasonably require made with its primary
regulator in the jurisdiction where its Head or Home Office is located for the three fiscal
years ending immediately preceding the year in which the application is submitted to CLS
Bank (or, if the applicant has been in existence for less than three years, such relevant
and material regulatory filings as CLS Bank may require) and such relevant and material
regulatory filings covering the period between the most recent relevant and material
regulatory filings furnished to CLS Bank and the date the application is submitted to CLS
Bank.
(g) Head or Home Office. The Head or Home Office of an applicant shall be located in a
jurisdiction:
(i) that adheres to the recommendations of FATF established to combat money
laundering and the Basle Committee Statement of Principles on the Prevention of Criminal
Use of the Banking System for the purposes of Money-Laundering; provided that, unless
otherwise specifically permitted by CLS Bank, the applicant shall not be operating in such
jurisdiction under any license that prohibits the licensed applicant from conducting banking
activities with the local citizens of, or with the local currency of, the jurisdiction and the
jurisdiction must not be designated by the United States Secretary of the Treasury as a
jurisdiction warranting special measures due to money laundering concerns; and
(ii) in which CLS Bank has received a satisfactory opinion of counsel in respect of,
among other things, the finality in such jurisdiction of Settlement across the books and
records of CLS Bank; provided that if the opinion required by CLS Bank pursuant to this
paragraph contains exceptions or reservations, CLS Bank may, in its discretion and in lieu
of rejecting the application for membership in CLS Bank, require that the applicant agrees
to such limits, conditions, or special restrictions upon the activities of the applicant as CLS
Bank deems appropriate under the circumstances for the protection of CLS Bank or its
Members.
(h) Designated Settlement Member. If an applicant contemplates acting as a Designated
Settlement Member, it must demonstrate to CLS Bank that it is able to effectively authorize
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Instructions submitted by a User Member and send and receive all information and
communications in connection with Instructions submitted by a User Member before such applicant
may act as a Designated Settlement Member for any User Member.
(i) Settlement Member Agreement and Legal Opinions. The applicant shall deliver to CLS
Bank (i) a Settlement Member Agreement and (ii) an opinion of counsel substantially in the form
attached to the Settlement Member Agreement, satisfactory to CLS Bank in form and content and
addressing such other matters as CLS Bank may specify. Such Settlement Member Agreement
shall provide that the applicant will participate in testing and trialing procedures with applicants for
membership and any Members, as the case may be, for any reason, including for changes to the
functionality of the CLS System and inclusion of a new currency for Settlement in CLS Bank. If the
opinion required by CLS Bank pursuant to this paragraph contains exceptions or reservations, CLS
Bank may, in its discretion and in lieu of rejecting the application for membership in CLS Bank,
require that the applicant agree to such limits, conditions, or special restrictions upon the activities
of the applicant as CLS Bank deems appropriate under the circumstances for the protection of CLS
Bank or its Members.
(j) Additional Information. Each Settlement Member must furnish to CLS Bank such
information (whether public or non-public) relating to its financial condition, operational capabilities
and compliance with the criteria as may be reasonably requested by CLS Bank based upon its
determination that such information is relevant and necessary (i) for the protection of CLS Bank or
its Members or (ii) to comply with applicable laws or regulations.
2.1.2 Application Process and Approval Procedure
(a) Application Process. An applicant to become a Settlement Member shall execute and
submit to CLS Bank an “Application for Settlement Membership” substantially in the form attached
to the Settlement Member Agreement. The application shall be accompanied by the supporting
information and documentation required by CLS Bank, including an executed Settlement Member
Agreement (as provided for in Rule 2.1.1(i)(i) an opinion of counsel (as provided for in Rule
2.1.1(i)(ii)) and financial information (as provided for in Rule 2.1.1(f)). The information provided to
CLS Bank pursuant to Rule 2.1.1 and Rule 2.1.3 shall be considered Settlement Member
Confidential Information for the purposes of the confidentiality provisions included in the Settlement
Member Agreement.
(b) Approval Procedure.
(i) Each complete application shall be reviewed by CLS Bank. As part of this review
process, CLS Bank may consult with the applicant’s primary regulator in the jurisdiction
where the applicant’s Head or Home Office is located if CLS Bank reasonably concludes
that such consultation is in the best interests of CLS Bank or its Members. CLS Bank
shall notify the applicant of any such consultation as soon as practicable, and shall
attempt to provide such notice contemporaneously with such consultation.
(ii) If CLS Bank concludes that the applicant satisfies the criteria specified in
Rule 2.1.1, CLS Bank shall (A) indicate its acceptance of the application by executing the
Settlement Member Agreement with CLS Services and notifying the applicant by returning
an executed copy to the applicant and so advising the Board of Directors, (B) inform the
applicant of the initial Aggregate Short Position Limit established for the applicant (as a
Settlement Member) and (C) inform the applicant of its eligibility (as a Settlement Member)
to participate in the CLS System as described in Rule 2.2.3 and the first date on which it is
eligible to submit the Instructions described therein.
(iii) If CLS Bank concludes that an applicant does not satisfy the criteria specified in
Rule 2.1.1, the applicant shall be notified as soon as practicable, and this decision shall in
all cases be final and conclusive, subject to the procedures set forth in Rule 10.3.
(iv) Notwithstanding the foregoing, CLS Bank may defer an application to become a
Settlement Member upon a determination by CLS Bank that CLS Bank does not have
adequate personnel, space, data processing capacity or other operational capability at
such time to perform its services for the applicant without impairing the ability of CLS Bank
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to provide services for its existing Members, to assure the prompt, accurate and orderly
processing and Settlement of Instructions or to otherwise carry out its functions, and this
decision shall in all cases be final and conclusive, subject to the procedures set forth in
Rule 10.3; provided, however, that any such application which is deferred solely pursuant
to this paragraph shall be approved as promptly as the capabilities of CLS Bank permit.
Applications submitted to CLS Bank shall be processed in the order in which they were
received.
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2.2 USER MEMBERSHIP
2.2.1 User Membership Criteria
Only an applicant that satisfies each of the following criteria will be approved as either a Category A User
Member or Category B User Member of CLS Bank:3
(a) CLS Group Holdings Shareholder. The applicant is a CLS Group Holdings Shareholder or
an Affiliate of a CLS Group Holdings Shareholder.
(b) Category A and Category B User Members. The applicant:
(i) has demonstrated to the Board of Directors that its business and capabilities
permit it to use CLS Bank’s services without undue risk to CLS Bank, its Members or CLS
Services; and
(ii) either:
(A) is an “indirect participant” and treated as a participant by the
“designating authority”, each within the meaning of the Settlement Finality
Regulations (a Category A User Member); or
(B) is not a “participant” within the meaning of the Settlement Finality
Regulations (a Category B User Member).
(c) No Special Factors; Adequate Resources and Capabilities
(i) CLS Bank shall have received no information that would reasonably be seen to
adversely reflect on the present or prospective business, operations, management or
financial condition, operational capabilities or applicable regulatory supervision or
requirements of, or access to liquidity in respect of, the applicant, including the financial
ability of the applicant to satisfy its obligations under Rule 9, to such an extent that the
applicant should be denied membership in CLS Bank; and
(ii) the applicant shall not have business practices, internal risk management
controls or any other factor or condition that would create undue risk for CLS Bank, its
Members or CLS Services.
3 Once approved as a Member of CLS Bank, the institution is also required to satisfy these requirements on a continuing basis.
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(d) Operating Capability. The applicant shall execute a testing and trialing agreement
substantially in the form set forth in Exhibit 2-A to the Member Handbook and, pursuant thereto,
satisfy such minimum operating capabilities as may be established from time to time by CLS Bank,
including:
(i) an ability to submit Instructions, Amend Instructions and Rescind Instructions
(and, to the extent applicable, NDF Valuation Instructions) to CLS Services through the
Submission Process, including (A) satisfying trials involving submission and matching of
Instructions with respect to each Submission Location (as more particularly set forth in
operational trialing protocols for User Members) and (B) demonstrating that a Submission
Location (and subsequently any additional requested Submission Location) operates
effectively before any additional Submission Location may be introduced;
(ii) adequate contingency plans for maintaining its operational capabilities if a natural
disaster, operational or technical failure, or other extraordinary event occurs;
(iii) an ability to provide adequate staffing at its specified contact location during each
Business Day and respond in a timely manner to all notices and communications; and
(iv) appropriate procedures and contingencies for the effective operation and
management of any existing or new Submission Location and management of applicable
Static Data.
(e) Financial Requirements
(i) Financial Statements. The applicant must furnish to CLS Bank the following:
(A) a copy of its annual financial statements for the three fiscal years ending
immediately preceding the year in which the application is submitted to CLS
Bank (or, if the applicant has been in existence for less than three years, such
financial statements as CLS Bank may require), each certified by its independent
certified public accountants (or equivalent); and
(B) all publicly-issued financial statements of the applicant covering the
period between the most recent annual financial statements furnished to CLS
Bank and the date the application described in Rule 2.2.2(a) is submitted to CLS
Bank;
provided, however, that this paragraph (e) shall not apply to an applicant applying to be an
Affiliated User Member.
To the extent that such audited financial statements are not prepared in accordance with
generally accepted accounting principles (as in effect in the jurisdiction of the Head or
Home Office of the applicant), the applicant shall provide CLS Bank with a discussion of
the material variations of such accounting principles from generally accepted accounting
principles.
(ii) Certificate. The applicant must furnish a certificate of the chief executive or chief
financial officer (or other authorized person acceptable to CLS Bank) of the applicant that
no material adverse changes have occurred in the financial condition of the applicant
since the date of the most recent financial statements provided to CLS Bank, and that the
applicant is not subject to any material contingent liabilities, except as set forth in such
financial statements.
(f) Designated Settlement Member. With respect to the Settlement Eligible Instructions
submitted to the CLS System by the applicant for Settlement, the applicant shall designate (i) a
single Designated Settlement Member through which all FX Instructions and Derivative Instructions
will be Settled unless another Designated Settlement Member is designated as such for a specific,
individual FX Instruction and (ii) a single Designated Settlement Member through which all NDF
Opening Instructions and FX Option Premium Instructions will be Settled.
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(g) Head or Home Office. The Head or Home Office of an applicant shall be located in a
jurisdiction that adheres to the recommendations of FATF established to combat money laundering
and the Basle Committee Statement of Principles on the Prevention of Criminal Use of the Banking
System for the purposes of Money-Laundering. Unless otherwise specifically permitted by CLS
Bank, the applicant shall not be operating in such jurisdiction under any license that prohibits the
licensed applicant from conducting banking activities with the local citizens of, or with the local
currency of, the jurisdiction and the jurisdiction must not be designated by the United States
Secretary of the Treasury as a jurisdiction warranting special measures due to money laundering
concerns.
(h) User Member Agreement and Legal Opinion. The applicant shall deliver to CLS Bank (i) a
User Member Agreement and (ii) an opinion of counsel substantially in the form attached to the
User Member Agreement, satisfactory to CLS Bank in form and content and addressing such other
matters as CLS Bank may specify. Such User Member Agreement shall provide that the applicant
will participate in testing and trialing procedures with applicants for membership and any Members,
as the case may be, for any reason, including for changes to the functionality of the CLS System
and inclusion of a new currency for Settlement in CLS Bank. If the opinion required by CLS Bank
pursuant to this paragraph contains exceptions or reservations, CLS Bank may, in its discretion and
in lieu of rejecting the application for membership in CLS Bank, require that the applicant agree to
such limits, conditions, or special restrictions upon the activities of the applicant as CLS Bank
deems appropriate under the circumstances for the protection of CLS Bank and its other Members.
(i) Additional Information. Each User Member must furnish to CLS Bank such information
(whether public or non-public) relating to its operational capabilities and compliance with the criteria
as may be reasonably requested by CLS Bank based upon its determination that such information
is relevant and necessary (i) for the protection of CLS Bank or its Members or (ii) to comply with
applicable laws or regulations.
2.2.2 Application Process and Approval Procedure
(a) Application Process. An applicant to become a User Member shall execute and submit an
“Application for User Membership” substantially in the form attached to the User Member
Agreement. The application shall be accompanied by the supporting information and
documentation required by CLS Bank, including an executed User Member Agreement (as
provided for in Rule 2.2.1(h)(i)) and an opinion of counsel (as provided for in Rule 2.2.1(h)(ii)). The
information provided to CLS Bank pursuant to Rule 2.2.1 and Rule 2.2.3 shall be considered User
Member Confidential Information for the purposes of the confidentiality provisions included in the
User Member Agreement.
(b) CLS Bank’s Approval Procedure.
(i) Each complete application shall be reviewed by CLS Bank. As part of this review
process, CLS Bank may consult with the applicant’s primary regulator in the jurisdiction
where the applicant’s Head or Home Office is located if CLS Bank reasonably concludes
that such consultation is in the best interests of CLS Bank or its Members. CLS Bank
shall notify the applicant of any such consultation as soon as practicable, and shall
attempt to provide such notice contemporaneously with such consultation.
(ii) If CLS Bank concludes that the applicant satisfies the criteria specified in Rule
2.2.1, CLS Bank shall (i) indicate its acceptance of the application by executing a copy of
the User Member Agreement (which has already been executed by the applicant) with
CLS Services and notifying the applicant by returning an executed copy to the applicant
and so advising the Board of Directors and (ii) inform the applicant of its eligibility (as a
User Member) to participate in the CLS System as described in Rule 2.3 and the first date
on which it is eligible to submit the Instructions described therein.
(iii) If CLS Bank concludes that an applicant does not satisfy the criteria specified in
Rule 2.2.1, the applicant shall be notified as soon as practicable, and this decision shall in
all cases be final and conclusive, subject to the procedures set forth in Rule 10.3.
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(iv) Notwithstanding the foregoing, CLS Bank may defer an application to become a
User Member upon a determination by CLS Bank that CLS Bank does not have adequate
personnel, space, data processing capacity or other operational capability at such time to
perform its services for the applicant without impairing the ability of CLS Bank to provide
services for its existing Members, to assure the prompt, accurate and orderly processing
and Settlement of Instructions or to otherwise carry out its functions, and this decision
shall in all cases be final and conclusive, subject to the procedures set forth in Rule 10.3;
provided, however, that any such applications which are deferred solely pursuant to this
paragraph shall be approved as promptly as the capabilities of CLS Bank permit.
Applications submitted to CLS Bank shall be processed in the order in which they were
received.
(c) Date for Submission of Instructions. At the time CLS Bank informs an applicant of the
acceptance of its application, it shall also inform such applicant of the date CLS Bank determines
as the date on which the applicant, as a User Member, may first submit Instructions to the CLS
System for Settlement.
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3 CURRENCIES
3.1 ELIGIBLE CURRENCIES
3.1.1 Approval of Eligible Currencies
The Board of Directors shall designate currencies as Eligible Currencies.
3.1.2 Eligibility Criteria
The Board of Directors in its sole discretion may designate a currency as an Eligible Currency only if such
currency satisfies each of the following criteria:
(a) CLS Bank has received a written request by two or more CLS Group Holdings
Shareholders to designate such currency as an Eligible Currency;
(b) CLS Bank has received indications from at least three institutions (or such fewer number
as the Board of Directors shall expressly approve) of willingness to act as Liquidity Providers for
such currency on terms CLS Bank in its sole discretion considers commercially acceptable;
(c) CLS Bank has determined to its satisfaction that the currency’s relevant payment
system(s) would meet CLS Bank’s requirements for designation as an Approved Payment System,
including opening hours that sufficiently overlap with the Settlement Period for all Eligible
Currencies;
(d) CLS Bank has deemed reasonable the cost of inclusion of such currency;
(e) CLS Bank has determined that adequate risk reduction would result from the designation
to justify the investments necessary to include such currency;
(f) CLS Bank has determined that any exchange restrictions or similar conditions on the
transferability of such currency are acceptable to CLS Bank;
(g) CLS Bank has determined that the convertibility, liquidity and historical volatility of such
currency, the stability of the banking system and rule of law applicable in the jurisdiction of such
currency, and other mitigating issues are acceptable to CLS Bank;
(h) the relevant Central Bank has agreed to (i) allow CLS Bank to establish a special account
with such Central Bank solely for the purpose of facilitating transfer of an Eligible Currency from
and to Settlement Members as provided under the CLS Bank Documents, (ii) permit a means of
operational access to the account acceptable to CLS Bank, and (iii) contractual arrangements that
are satisfactory to CLS Bank;
(i) CLS Bank has received a legal opinion in form and substance satisfactory to CLS Bank
addressing finality of payments made to and from CLS Bank’s account with the relevant Central
Bank and such other legal considerations as CLS Bank may require; and
(j) CLS Bank has determined that there is legislation or regulation (or equivalent) in the
jurisdiction of the currency that provides for the finality of (i) the Settlement of Instructions and (ii)
Pay-Ins and other Settlement related payments received by CLS Bank through the relevant
payment system for such currency; provided, however, that the Board of Directors may waive this
requirement if it determines that the local law of that jurisdiction provides for finality protection
which is comparable to that of the jurisdictions in which CLS Bank has Eligible Currencies at the
time of such determination.
* * *
(September 10, 2007)
Extracts relating to Eligibility Criteria
for Membership and Currencies in the CLS System
© 2007 CLS Bank International
1
2 MEMBERSHIP
2.1 SETTLEMENT MEMBERSHIP
2.1.1 Settlement Membership Criteria
Only an applicant that satisfies each of the following criteria may be approved as a Settlement Member of
CLS Bank:1
(a) CLS Group Holdings Shareholder. The applicant is a CLS Group Holdings Shareholder or
an Affiliate of a CLS Group Holdings Shareholder.
(b) Restriction on Affiliates. The applicant is not an Affiliate of a Settlement Member (unless
such Settlement Member’s Termination Time is prior to the effective date of the applicant’s
membership with CLS Bank).
(c) Bank, U.S. Broker-Dealer, or U.K. Investment Firm; Financial Institution Requirement.
The applicant:
(i) either:
(A) is a bank or trust company, subject to prudential supervision by a
governmental authority acceptable to CLS Bank;
(B) is a broker or dealer registered under the U.S. Securities and Exchange
Act of 1934;
(C) is an investment firm (as defined in point 2 of Article 1 of Council
Directive 93/22/EC of 10th May, 1993 on investment services in the securities
field) which carries on a regulated activity in the United Kingdom for the purposes
of the Financial Services and Markets Act of 2000 but which is not a EEA firm or
a Treaty firm (as those terms are used in that Act) qualifying for authorization
under Schedules 3 and 4, respectively, to that Act; or
(D) does not qualify under paragraphs (A), (B) or (C) above, but has
demonstrated to the Board of Directors that its business and capabilities permit it
to use CLS Bank’s services without undue risk to CLS Bank, its Members or CLS
Services and is subject to prudential supervision by an authority acceptable to
CLS Bank; and
1 Once approved as a Member of CLS Bank, the institution is also required to satisfy these requirements on a continuing basis.
2
(ii) is a “financial institution” within the meaning of 12 U.S.C. §4402 and a
“participant” within the meaning of the Settlement Finality Regulations.
(d) No Special Factors; Adequate Resources and Capabilities
(i) CLS Bank shall have received no information that would reasonably be seen to
adversely reflect on the present or prospective business, operations, management or
financial condition, operational capabilities or applicable regulatory supervision or
requirements of, or access to liquidity in respect of, the applicant, including the financial
ability of the applicant to satisfy its obligations under Rule 9, to such an extent that the
applicant should be denied membership in CLS Bank; and
(ii) the applicant shall not have business practices, internal risk management
controls or any other factor or condition that would create undue risk for CLS Bank, its
Members or CLS Services.
(e) Operating Capability. The applicant shall execute a testing and trialing agreement
substantially in the form set forth in Exhibit 2-A to the Member Handbook and, pursuant thereto,
satisfy such minimum operating capabilities as may be established from time to time by CLS Bank,
including:
(i) an ability to submit Instructions, Amend Instructions and Rescind Instructions
(and, to the extent applicable, NDF Valuation Instructions) to CLS Services through the
Submission Process, including (A) satisfying trials involving submission, matching and
Settlement of Instructions with respect to each Submission Location, applicable Pay-Ins
and Pay-Outs (as more particularly set forth in operational trialing protocols for Settlement
Members) and (B) demonstrating that a Submission Location (and subsequently any
additional requested Submission Location) operates effectively before any additional
Submission Location may be introduced;
(ii) an ability to satisfy operationally, directly or through its applicable Nostro Agent,
the requirements necessary to deliver funds in each Eligible Currency to CLS Bank within
specified times so as to satisfy the Pay-In requirements described in Rule 6;
(iii) adequate contingency plans in the event of its inability, or any of its Nostro
Agents’ inability, to satisfy the funding requirements described in paragraph (ii) above;
(iv) adequate contingency plans for maintaining its operational capabilities if a natural
disaster, operational or technical failure, or other extraordinary event occurs; and
(v) appropriate procedures and contingencies for the effective operation and
management of its Control Function, including the ability to effectively operate and
manage any existing or new Control Function Gateway or Submission Location and
manage applicable Static Data.
(f) Financial Requirements
(i) Minimum Capital and Capital Ratio Requirements. An applicant must maintain
capital equal to or in excess of the capital and capital ratio requirements imposed from
time to time by its primary regulator.
(A) In the case of banks and trust companies (described in
Rule 2.1.1(c)(i)(A)), such minimum capital and capital ratio requirements will be
those determined in accordance with the home country regulatory authorities of
the Head or Home Office of the applicant; provided, however, that such
requirements must be consistent with the guidelines established by the Bank for
International Settlement (BIS).
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(B) In the case of U.S. broker-dealers (described in Rule 2.1.1(c)(i)(B)),
such minimum capital and capital ratio requirements will be those determined by
the Securities and Exchange Commission.
(C) In the case of U.K. investment firms (described in Rule 2.1.1(c)(i)(C)),
such minimum capital and capital ratio requirements will be those determined by
the U.K. Financial Services Authority.
If an applicant is not subject to any of the requirements described in paragraphs (A)
through (C) above, CLS Bank may require that the applicant comply with capital and
capital ratio requirements that exceed those imposed by the applicant’s primary regulator
if CLS Bank determines, in its reasonable discretion, that the capital and capital ratio
requirements imposed by the applicant’s primary regulator are less than those described
in paragraphs (A) through (C) above and such excess capital or capital ratio requirement
is reasonably necessary for the protection of CLS Bank and its Members.
(ii) Minimum Short-Term Credit Rating Criteria
(A) If an applicant has a public short-term rating (consisting of short-term
debt or deposit ratings) from any Rating Agency,2 evidence of such rating shall
be submitted to CLS Bank as part of the application process.
(B) If an applicant does not have a public short-term rating from at least one
Rating Agency, the applicant must submit to CLS Bank either:
(1) a guarantee from the Parent-Company Guarantor of the
applicant acceptable to CLS Bank, an opinion of counsel satisfactory to
CLS Bank in form and content and addressing such other matters as
CLS Bank may specify, and evidence of the Parent-Company
Guarantor’s public short-term rating (consisting of short-term debt or
deposit ratings) issued by a Rating Agency; or
(2) written confirmation of a private short-term rating of the
applicant (consisting of short-term debt or deposit ratings) issued by a
Rating Agency and the basis upon which such private rating was
issued.
(C) CLS Bank will determine its internal short-term rating of the applicant
based on the following criteria:
2 Fitch, Moody’s or S&P (or any other rating agency specified by CLS Bank in the CLS Bank International Member Handbook).
4
(1) If two or more Rating Agencies provide equivalent short-term
ratings for an applicant, CLS Bank’s internal short-term rating for the
applicant shall be based on such ratings; if all such Rating Agencies do
not provide equivalent short-term ratings, then CLS Bank’s internal
short-term rating shall be based on the lowest rating.
(2) If an applicant is only rated for short-term ratings by one Rating
Agency, CLS Bank’s internal short-term rating for the applicant shall be
based on the one short-term rating.
(3) If an applicant is not rated for short-term ratings by any Rating
Agency, CLS Bank’s internal short-term rating shall be based on the
rating of its Parent-Company Guarantor (in which case the methodology
set forth in clauses (1) and (2) above shall apply) or the private rating
provided to CLS Bank as described in Rule 2.1.1(f)(ii)(B)(2).
For the purposes of determining its internal short-term rating for an applicant,
CLS Bank may adjust the short-term rating arrived at pursuant to clauses (1), (2)
or (3) above, as applicable, by raising or lowering such rating based upon all
information available to CLS Bank, including the ratings outlook for the applicant
published by any of the Rating Agencies and any credit reports of the applicant.
(D) No applicant will be eligible for membership if:
(1) in the case of an applicant that CLS Bank has assigned an
internal long-term rating that is at or above S&P BBB- (or equivalent)
(or, if applicable, to its Parent-Company Guarantor that is at or above
S&P BBB (or equivalent)) as described in Rule 2.1.1(f)(iii), CLS Bank
assigns an internal short-term rating to the applicant that is less than
S&P A-3 (or equivalent) (or, if applicable, to its Parent-Company
Guarantor that is less than S&P A-2 (or equivalent)); or
(2) in the case of an applicant that CLS Bank has assigned an
internal long-term rating that is less than S&P BBB- (or equivalent) (or, if
applicable, to its Parent-Company Guarantor that is less than S&P BBB
(or equivalent)) as described in Rule 2.1.1(f)(iii), CLS Bank assigns an
internal short-term rating to the applicant that is less than S&P B (or
equivalent) (or, if applicable, to its Parent-Company Guarantor that is
less than S&P A-3 (or equivalent)).
(iii) Minimum Long-Term Credit Rating Criteria
(A) If an applicant (and, if applicable, its Parent-Company Guarantor) has a
long-term rating from any of the Rating Agencies, evidence of such rating shall
be submitted to CLS Bank as part of the application process. If an applicant (or,
if applicable, its Parent-Company Guarantor) does not have a long-term rating
from at least one of the Rating Agencies, CLS Bank shall conduct an internal risk
analysis to assign a long-term rating to the applicant (or, if applicable, its Parent-
Company Guarantor).
The internal risk analysis may be based on, among other things, (1) the public
ratings of the applicant’s (and, if applicable, its Parent-Company Guarantor’s)
asset-backed securities, applicable derivative instruments or other financial
products; (2) the credit reports of the applicant (and, if applicable, the Parent-
Company Guarantor’s); and (3) details of internal risk ratings from Settlement
Members (or applicants proposing to be Settlement Members) with foreign
exchange trading relationships with such applicant (and, if applicable, the Parent-
Company Guarantor), and the applicant hereby agrees to the disclosure of these
internal risk ratings and related information from Settlement Members or
applicants, as the case may be.
5
(B) CLS Bank will determine its internal long-term rating of the applicant
based on the following criteria:
(1) If the applicant is rated for long-term ratings by two or more of
the Rating Agencies, then CLS Bank’s internal long-term rating of the
applicant shall be based on the lowest rating.
(2) If an applicant is only rated for long-term ratings by one Rating
Agency, CLS Bank’s internal long-term rating for the applicant shall be
based on the one long-term rating.
For the purposes of determining its internal long-term rating for an applicant, CLS
Bank may adjust the applicant’s long-term rating arrived at pursuant to clauses
(1) or (2) above, as applicable, by raising or lowering such rating based upon all
information available to CLS Bank, including the ratings outlook for the applicant
published by any of the Rating Agencies and any credit reports of the applicant.
(C) No applicant will be eligible for membership if:
(1) CLS Bank assigns an internal long-term rating to the applicant
that is less than S&P BBB- (or equivalent) (or, if applicable, to its
Parent-Company Guarantor that is less than S&P BBB (or equivalent)),
except as otherwise permitted by clause (2) below;
(2) CLS Bank assigns an internal long-term rating to the applicant
that is less than S&P BB- (or equivalent) (or, if applicable, to its Parent-
Company Guarantor that is less than S&P BB (or equivalent)); provided,
however, that this clause (2) shall only apply to an applicant if CLS Bank
determined that such internal long-term rating of the applicant is
constrained by a non-investment grade credit rating (i.e., less than S&P
BBB- (or equivalent)) assigned to the sovereign of the jurisdiction in
which the Head or Home Office of the applicant is located; or
(3) CLS Bank is not able to assign an internal long-term rating to
the applicant (or, if applicable, its Parent-Company Guarantor) after
conducting an internal risk analysis as described in paragraph (A)
above.
For purposes of clause (2) above, the sovereign credit rating shall be the lower of
the foreign currency or local currency sovereign credit rating, determined by
reference to such ratings issued by any of the Rating Agencies to the sovereign.
(iv) Minimum Stand-Alone Credit Rating Criteria.
(A) If an applicant (or, if applicable, its Parent-Company Guarantor) has any
Stand-Alone Credit Rating , evidence of such ratings shall be submitted to CLS
Bank as part of the application process.
(B) If CLS Bank has assigned an internal long-term rating to the applicant
that is less than S&P BBB- (or equivalent) (or, if applicable, to its Parent-
Company Guarantor that is less than S&P BBB (or equivalent)), the applicant will
not be eligible for membership if the Stand-Alone Credit Rating of the applicant is
less than Moody’s D+ (or equivalent) (or, if applicable, of the Parent-Company
Guarantor is less than Moody’s C- (or equivalent)).
(v) Enhancements. In the case of an applicant that CLS Bank has assigned an
internal long-term rating that is less than S&P BBB- (or equivalent), CLS Bank may, but
shall not be obligated to, subject the applicant to additional financial or credit related
requirement(s) that CLS Bank may identify in Chapter 2 of the Member Handbook.
6
(vi) Financial Statements. The applicant must furnish to CLS Bank the following:
(A) a copy of its annual financial statements (and, if a Guarantee has been
provided, the annual financial statements on a consolidated basis of (1) the
applicant and (2) its Parent-Company Guarantor) for the three fiscal years ending
immediately preceding the year in which the application is submitted to CLS
Bank (or, if the applicant or its Parent-Company Guarantor has been in existence
for less than three years, such financial statements as CLS Bank may require),
each certified by its independent certified public accountants (or equivalent); and
(B) all publicly-issued financial statements of the applicant (and, if
applicable, of its Parent-Company Guarantor) covering the period between the
most recent annual financial statements furnished to CLS Bank and the date the
application described in Rule 2.1.2(b) is submitted to CLS Bank.
To the extent that such audited financial statements are not prepared in accordance with
generally accepted accounting principles (as in effect in the jurisdiction of the Head or
Home Office of the applicant or its Parent-Company Guarantor, as applicable), the
applicant shall provide CLS Bank with a discussion of the material variations of such
accounting principles from generally accepted accounting principles.
(vii) Certificate. The applicant must furnish a certificate of the chief executive or chief
financial officer (or other authorized person acceptable to CLS Bank) of the applicant that
no material adverse changes have occurred in the financial condition of the applicant
since the date of the most recent financial statements provided to CLS Bank, and that the
applicant is not subject to any material contingent liabilities, except as set forth in such
financial statements.
(viii) Regulatory Filings. The applicant must furnish copies of such relevant and
material regulatory filings as CLS Bank may reasonably require made with its primary
regulator in the jurisdiction where its Head or Home Office is located for the three fiscal
years ending immediately preceding the year in which the application is submitted to CLS
Bank (or, if the applicant has been in existence for less than three years, such relevant
and material regulatory filings as CLS Bank may require) and such relevant and material
regulatory filings covering the period between the most recent relevant and material
regulatory filings furnished to CLS Bank and the date the application is submitted to CLS
Bank.
(g) Head or Home Office. The Head or Home Office of an applicant shall be located in a
jurisdiction:
(i) that adheres to the recommendations of FATF established to combat money
laundering and the Basle Committee Statement of Principles on the Prevention of Criminal
Use of the Banking System for the purposes of Money-Laundering; provided that, unless
otherwise specifically permitted by CLS Bank, the applicant shall not be operating in such
jurisdiction under any license that prohibits the licensed applicant from conducting banking
activities with the local citizens of, or with the local currency of, the jurisdiction and the
jurisdiction must not be designated by the United States Secretary of the Treasury as a
jurisdiction warranting special measures due to money laundering concerns; and
(ii) in which CLS Bank has received a satisfactory opinion of counsel in respect of,
among other things, the finality in such jurisdiction of Settlement across the books and
records of CLS Bank; provided that if the opinion required by CLS Bank pursuant to this
paragraph contains exceptions or reservations, CLS Bank may, in its discretion and in lieu
of rejecting the application for membership in CLS Bank, require that the applicant agrees
to such limits, conditions, or special restrictions upon the activities of the applicant as CLS
Bank deems appropriate under the circumstances for the protection of CLS Bank or its
Members.
(h) Designated Settlement Member. If an applicant contemplates acting as a Designated
Settlement Member, it must demonstrate to CLS Bank that it is able to effectively authorize
7
Instructions submitted by a User Member and send and receive all information and
communications in connection with Instructions submitted by a User Member before such applicant
may act as a Designated Settlement Member for any User Member.
(i) Settlement Member Agreement and Legal Opinions. The applicant shall deliver to CLS
Bank (i) a Settlement Member Agreement and (ii) an opinion of counsel substantially in the form
attached to the Settlement Member Agreement, satisfactory to CLS Bank in form and content and
addressing such other matters as CLS Bank may specify. Such Settlement Member Agreement
shall provide that the applicant will participate in testing and trialing procedures with applicants for
membership and any Members, as the case may be, for any reason, including for changes to the
functionality of the CLS System and inclusion of a new currency for Settlement in CLS Bank. If the
opinion required by CLS Bank pursuant to this paragraph contains exceptions or reservations, CLS
Bank may, in its discretion and in lieu of rejecting the application for membership in CLS Bank,
require that the applicant agree to such limits, conditions, or special restrictions upon the activities
of the applicant as CLS Bank deems appropriate under the circumstances for the protection of CLS
Bank or its Members.
(j) Additional Information. Each Settlement Member must furnish to CLS Bank such
information (whether public or non-public) relating to its financial condition, operational capabilities
and compliance with the criteria as may be reasonably requested by CLS Bank based upon its
determination that such information is relevant and necessary (i) for the protection of CLS Bank or
its Members or (ii) to comply with applicable laws or regulations.
2.1.2 Application Process and Approval Procedure
(a) Application Process. An applicant to become a Settlement Member shall execute and
submit to CLS Bank an “Application for Settlement Membership” substantially in the form attached
to the Settlement Member Agreement. The application shall be accompanied by the supporting
information and documentation required by CLS Bank, including an executed Settlement Member
Agreement (as provided for in Rule 2.1.1(i)(i) an opinion of counsel (as provided for in Rule
2.1.1(i)(ii)) and financial information (as provided for in Rule 2.1.1(f)). The information provided to
CLS Bank pursuant to Rule 2.1.1 and Rule 2.1.3 shall be considered Settlement Member
Confidential Information for the purposes of the confidentiality provisions included in the Settlement
Member Agreement.
(b) Approval Procedure.
(i) Each complete application shall be reviewed by CLS Bank. As part of this review
process, CLS Bank may consult with the applicant’s primary regulator in the jurisdiction
where the applicant’s Head or Home Office is located if CLS Bank reasonably concludes
that such consultation is in the best interests of CLS Bank or its Members. CLS Bank
shall notify the applicant of any such consultation as soon as practicable, and shall
attempt to provide such notice contemporaneously with such consultation.
(ii) If CLS Bank concludes that the applicant satisfies the criteria specified in
Rule 2.1.1, CLS Bank shall (A) indicate its acceptance of the application by executing the
Settlement Member Agreement with CLS Services and notifying the applicant by returning
an executed copy to the applicant and so advising the Board of Directors, (B) inform the
applicant of the initial Aggregate Short Position Limit established for the applicant (as a
Settlement Member) and (C) inform the applicant of its eligibility (as a Settlement Member)
to participate in the CLS System as described in Rule 2.2.3 and the first date on which it is
eligible to submit the Instructions described therein.
(iii) If CLS Bank concludes that an applicant does not satisfy the criteria specified in
Rule 2.1.1, the applicant shall be notified as soon as practicable, and this decision shall in
all cases be final and conclusive, subject to the procedures set forth in Rule 10.3.
(iv) Notwithstanding the foregoing, CLS Bank may defer an application to become a
Settlement Member upon a determination by CLS Bank that CLS Bank does not have
adequate personnel, space, data processing capacity or other operational capability at
such time to perform its services for the applicant without impairing the ability of CLS Bank
8
to provide services for its existing Members, to assure the prompt, accurate and orderly
processing and Settlement of Instructions or to otherwise carry out its functions, and this
decision shall in all cases be final and conclusive, subject to the procedures set forth in
Rule 10.3; provided, however, that any such application which is deferred solely pursuant
to this paragraph shall be approved as promptly as the capabilities of CLS Bank permit.
Applications submitted to CLS Bank shall be processed in the order in which they were
received.
* * *
9
2.2 USER MEMBERSHIP
2.2.1 User Membership Criteria
Only an applicant that satisfies each of the following criteria will be approved as either a Category A User
Member or Category B User Member of CLS Bank:3
(a) CLS Group Holdings Shareholder. The applicant is a CLS Group Holdings Shareholder or
an Affiliate of a CLS Group Holdings Shareholder.
(b) Category A and Category B User Members. The applicant:
(i) has demonstrated to the Board of Directors that its business and capabilities
permit it to use CLS Bank’s services without undue risk to CLS Bank, its Members or CLS
Services; and
(ii) either:
(A) is an “indirect participant” and treated as a participant by the
“designating authority”, each within the meaning of the Settlement Finality
Regulations (a Category A User Member); or
(B) is not a “participant” within the meaning of the Settlement Finality
Regulations (a Category B User Member).
(c) No Special Factors; Adequate Resources and Capabilities
(i) CLS Bank shall have received no information that would reasonably be seen to
adversely reflect on the present or prospective business, operations, management or
financial condition, operational capabilities or applicable regulatory supervision or
requirements of, or access to liquidity in respect of, the applicant, including the financial
ability of the applicant to satisfy its obligations under Rule 9, to such an extent that the
applicant should be denied membership in CLS Bank; and
(ii) the applicant shall not have business practices, internal risk management
controls or any other factor or condition that would create undue risk for CLS Bank, its
Members or CLS Services.
3 Once approved as a Member of CLS Bank, the institution is also required to satisfy these requirements on a continuing basis.
10
(d) Operating Capability. The applicant shall execute a testing and trialing agreement
substantially in the form set forth in Exhibit 2-A to the Member Handbook and, pursuant thereto,
satisfy such minimum operating capabilities as may be established from time to time by CLS Bank,
including:
(i) an ability to submit Instructions, Amend Instructions and Rescind Instructions
(and, to the extent applicable, NDF Valuation Instructions) to CLS Services through the
Submission Process, including (A) satisfying trials involving submission and matching of
Instructions with respect to each Submission Location (as more particularly set forth in
operational trialing protocols for User Members) and (B) demonstrating that a Submission
Location (and subsequently any additional requested Submission Location) operates
effectively before any additional Submission Location may be introduced;
(ii) adequate contingency plans for maintaining its operational capabilities if a natural
disaster, operational or technical failure, or other extraordinary event occurs;
(iii) an ability to provide adequate staffing at its specified contact location during each
Business Day and respond in a timely manner to all notices and communications; and
(iv) appropriate procedures and contingencies for the effective operation and
management of any existing or new Submission Location and management of applicable
Static Data.
(e) Financial Requirements
(i) Financial Statements. The applicant must furnish to CLS Bank the following:
(A) a copy of its annual financial statements for the three fiscal years ending
immediately preceding the year in which the application is submitted to CLS
Bank (or, if the applicant has been in existence for less than three years, such
financial statements as CLS Bank may require), each certified by its independent
certified public accountants (or equivalent); and
(B) all publicly-issued financial statements of the applicant covering the
period between the most recent annual financial statements furnished to CLS
Bank and the date the application described in Rule 2.2.2(a) is submitted to CLS
Bank;
provided, however, that this paragraph (e) shall not apply to an applicant applying to be an
Affiliated User Member.
To the extent that such audited financial statements are not prepared in accordance with
generally accepted accounting principles (as in effect in the jurisdiction of the Head or
Home Office of the applicant), the applicant shall provide CLS Bank with a discussion of
the material variations of such accounting principles from generally accepted accounting
principles.
(ii) Certificate. The applicant must furnish a certificate of the chief executive or chief
financial officer (or other authorized person acceptable to CLS Bank) of the applicant that
no material adverse changes have occurred in the financial condition of the applicant
since the date of the most recent financial statements provided to CLS Bank, and that the
applicant is not subject to any material contingent liabilities, except as set forth in such
financial statements.
(f) Designated Settlement Member. With respect to the Settlement Eligible Instructions
submitted to the CLS System by the applicant for Settlement, the applicant shall designate (i) a
single Designated Settlement Member through which all FX Instructions and Derivative Instructions
will be Settled unless another Designated Settlement Member is designated as such for a specific,
individual FX Instruction and (ii) a single Designated Settlement Member through which all NDF
Opening Instructions and FX Option Premium Instructions will be Settled.
11
(g) Head or Home Office. The Head or Home Office of an applicant shall be located in a
jurisdiction that adheres to the recommendations of FATF established to combat money laundering
and the Basle Committee Statement of Principles on the Prevention of Criminal Use of the Banking
System for the purposes of Money-Laundering. Unless otherwise specifically permitted by CLS
Bank, the applicant shall not be operating in such jurisdiction under any license that prohibits the
licensed applicant from conducting banking activities with the local citizens of, or with the local
currency of, the jurisdiction and the jurisdiction must not be designated by the United States
Secretary of the Treasury as a jurisdiction warranting special measures due to money laundering
concerns.
(h) User Member Agreement and Legal Opinion. The applicant shall deliver to CLS Bank (i) a
User Member Agreement and (ii) an opinion of counsel substantially in the form attached to the
User Member Agreement, satisfactory to CLS Bank in form and content and addressing such other
matters as CLS Bank may specify. Such User Member Agreement shall provide that the applicant
will participate in testing and trialing procedures with applicants for membership and any Members,
as the case may be, for any reason, including for changes to the functionality of the CLS System
and inclusion of a new currency for Settlement in CLS Bank. If the opinion required by CLS Bank
pursuant to this paragraph contains exceptions or reservations, CLS Bank may, in its discretion and
in lieu of rejecting the application for membership in CLS Bank, require that the applicant agree to
such limits, conditions, or special restrictions upon the activities of the applicant as CLS Bank
deems appropriate under the circumstances for the protection of CLS Bank and its other Members.
(i) Additional Information. Each User Member must furnish to CLS Bank such information
(whether public or non-public) relating to its operational capabilities and compliance with the criteria
as may be reasonably requested by CLS Bank based upon its determination that such information
is relevant and necessary (i) for the protection of CLS Bank or its Members or (ii) to comply with
applicable laws or regulations.
2.2.2 Application Process and Approval Procedure
(a) Application Process. An applicant to become a User Member shall execute and submit an
“Application for User Membership” substantially in the form attached to the User Member
Agreement. The application shall be accompanied by the supporting information and
documentation required by CLS Bank, including an executed User Member Agreement (as
provided for in Rule 2.2.1(h)(i)) and an opinion of counsel (as provided for in Rule 2.2.1(h)(ii)). The
information provided to CLS Bank pursuant to Rule 2.2.1 and Rule 2.2.3 shall be considered User
Member Confidential Information for the purposes of the confidentiality provisions included in the
User Member Agreement.
(b) CLS Bank’s Approval Procedure.
(i) Each complete application shall be reviewed by CLS Bank. As part of this review
process, CLS Bank may consult with the applicant’s primary regulator in the jurisdiction
where the applicant’s Head or Home Office is located if CLS Bank reasonably concludes
that such consultation is in the best interests of CLS Bank or its Members. CLS Bank
shall notify the applicant of any such consultation as soon as practicable, and shall
attempt to provide such notice contemporaneously with such consultation.
(ii) If CLS Bank concludes that the applicant satisfies the criteria specified in Rule
2.2.1, CLS Bank shall (i) indicate its acceptance of the application by executing a copy of
the User Member Agreement (which has already been executed by the applicant) with
CLS Services and notifying the applicant by returning an executed copy to the applicant
and so advising the Board of Directors and (ii) inform the applicant of its eligibility (as a
User Member) to participate in the CLS System as described in Rule 2.3 and the first date
on which it is eligible to submit the Instructions described therein.
(iii) If CLS Bank concludes that an applicant does not satisfy the criteria specified in
Rule 2.2.1, the applicant shall be notified as soon as practicable, and this decision shall in
all cases be final and conclusive, subject to the procedures set forth in Rule 10.3.
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(iv) Notwithstanding the foregoing, CLS Bank may defer an application to become a
User Member upon a determination by CLS Bank that CLS Bank does not have adequate
personnel, space, data processing capacity or other operational capability at such time to
perform its services for the applicant without impairing the ability of CLS Bank to provide
services for its existing Members, to assure the prompt, accurate and orderly processing
and Settlement of Instructions or to otherwise carry out its functions, and this decision
shall in all cases be final and conclusive, subject to the procedures set forth in Rule 10.3;
provided, however, that any such applications which are deferred solely pursuant to this
paragraph shall be approved as promptly as the capabilities of CLS Bank permit.
Applications submitted to CLS Bank shall be processed in the order in which they were
received.
(c) Date for Submission of Instructions. At the time CLS Bank informs an applicant of the
acceptance of its application, it shall also inform such applicant of the date CLS Bank determines
as the date on which the applicant, as a User Member, may first submit Instructions to the CLS
System for Settlement.
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3 CURRENCIES
3.1 ELIGIBLE CURRENCIES
3.1.1 Approval of Eligible Currencies
The Board of Directors shall designate currencies as Eligible Currencies.
3.1.2 Eligibility Criteria
The Board of Directors in its sole discretion may designate a currency as an Eligible Currency only if such
currency satisfies each of the following criteria:
(a) CLS Bank has received a written request by two or more CLS Group Holdings
Shareholders to designate such currency as an Eligible Currency;
(b) CLS Bank has received indications from at least three institutions (or such fewer number
as the Board of Directors shall expressly approve) of willingness to act as Liquidity Providers for
such currency on terms CLS Bank in its sole discretion considers commercially acceptable;
(c) CLS Bank has determined to its satisfaction that the currency’s relevant payment
system(s) would meet CLS Bank’s requirements for designation as an Approved Payment System,
including opening hours that sufficiently overlap with the Settlement Period for all Eligible
Currencies;
(d) CLS Bank has deemed reasonable the cost of inclusion of such currency;
(e) CLS Bank has determined that adequate risk reduction would result from the designation
to justify the investments necessary to include such currency;
(f) CLS Bank has determined that any exchange restrictions or similar conditions on the
transferability of such currency are acceptable to CLS Bank;
(g) CLS Bank has determined that the convertibility, liquidity and historical volatility of such
currency, the stability of the banking system and rule of law applicable in the jurisdiction of such
currency, and other mitigating issues are acceptable to CLS Bank;
(h) the relevant Central Bank has agreed to (i) allow CLS Bank to establish a special account
with such Central Bank solely for the purpose of facilitating transfer of an Eligible Currency from
and to Settlement Members as provided under the CLS Bank Documents, (ii) permit a means of
operational access to the account acceptable to CLS Bank, and (iii) contractual arrangements that
are satisfactory to CLS Bank;
(i) CLS Bank has received a legal opinion in form and substance satisfactory to CLS Bank
addressing finality of payments made to and from CLS Bank’s account with the relevant Central
Bank and such other legal considerations as CLS Bank may require; and
(j) CLS Bank has determined that there is legislation or regulation (or equivalent) in the
jurisdiction of the currency that provides for the finality of (i) the Settlement of Instructions and (ii)
Pay-Ins and other Settlement related payments received by CLS Bank through the relevant
payment system for such currency; provided, however, that the Board of Directors may waive this
requirement if it determines that the local law of that jurisdiction provides for finality protection
which is comparable to that of the jurisdictions in which CLS Bank has Eligible Currencies at the
time of such determination.
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