October’s consultation on proposals arising from the Global Foreign Exchange Committee (GFXC) review of the global principles of good practice in the FX market (referred to collectively as the FX Global Code) was designed to clarify market participants’ responsibility to mitigate settlement risk and to enhance market transparency on transactions and the use of data.
It received a frosty response from the body that represents the collective interests of these organisations, though. The Foreign Exchange Professionals Association suggested that the risk waterfall approach recommended in the review doesn’t accurately capture other types of scenario where risk is addressed in a different manner and payment-versus-payment (PvP) settlement is not appropriate.
It also believes additional guidance is required with respect to periodic review of standard settlement instructions (SSIs) and that proposed changes to considerations for execution of FX transactions could capture a wide range of electronic communications as “written agreements”, creating significant inefficiencies in transaction flow and unnecessarily duplicative record-keeping requirements for market participants.
Improving transparency, reducing risk
However, the market participants who spoke to Euromoney were pretty relaxed about these proposals. For example, David Morrison, senior market analyst at Trade Nation, reckons the risk waterfall approach and the emphasis on PvP settlement should improve transparency while reducing settlement risk – even for trades within a single institution, on the basis that settlement mitigates risks related to operational failures or mismatches.
This
