Although a foreign exchange transaction settled on a PvP basis is a self-collateralising transaction, there is still an exchange rate risk for CLS. In order to protect it against exchange rate fluctuations, participants are charged a haircut (safety margin) on their long positions. Accordingly, the participant must always overcompensate for its short positions. The haircut specific to each currency is based on the historic volatility of the currency, including a mark-up. In the event of a participant failing to meet its pay-in obligations, the