In principle, foreign exchange transactions are – apart from the exchange rate risk – self-collateralising transactions: a liability in one currency is always covered by a claim in another currency. However, the self-collateralisation functions only if both parties can also be guaranteed to meet their liabilities. In simplified terms, in a foreign exchange transaction CLS is interposed between two trading parties in order to coordinate the mutual liabilities created by a foreign exchange transaction. CLS ensures that the flows of funds are transferred simultaneously between the parties involved by means of the PvP mechanism so as to eliminate settlement risk for the two parties. The CLS system is so complex because fund transfers must be as secure as possible while at the same time keeping liquidity requirements to a minimum. How CLS satisfies these requirements in detail is explained in the following sections.