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Time: 2pm – 4pm 9 March 2021 | Location: Teleconference
Item 1 – Welcome and Apologies
Andrew Hauser (Chair, Bank of England) welcomed guest presenters Alicia Krebs (CLS), Harri Vikstedt (Bank of Canada) and Marcel Zimmermann (Swiss National Bank).
Item 2 – Minutes of the 19 November meeting
The minutes of the 19 November meeting were agreed. There were no matters arising.
Item 3 – GFXC Discussion
The FXJSC Secretariat provided an overview on the upcoming Global Foreign Exchange Committee (GFXC) meeting on 29 March, with the main focus on the three-year review of the FX Global Code (Code). Members discussed the GFXC materials and proposals, and were invited to provide written comments. An aggregated summary would be provided to the GFXC Secretariat ahead of the 29 March meeting.
Pre-hedging: Harri Vikstedt (Bank of Canada) provided an update on the progress the pre-hedging working group had made since the December GFXC meeting. The updated pre-hedging paper reflected the requests received from the local FX Committees to provide more clarity on Principle 11 and pre-hedging, including a discussion on different order types (such as stop loss, limit and fixing orders). Mr Vikstedt noted that the purpose of the paper was to provide high-level guidance complementing the text in the Code and was not a prescriptive rule book on pre-hedging.
Algo & TCA: Marcel Zimmermann (Swiss National Bank) introduced the proposals put forward by the Algo & Transaction Cost Analysis (TCA) working group. These included: introduction of a TCA Data Template; an amendment to Principle 18 to introduce the concept of TCA and to encourage market participants to use the TCA Data Template; as well as amendments to Principle 18 to cover conflicts of interest; and the introduction of an Algo Due Diligence template, together with an encouragement to use the template.
Last Look: The FXJSC reviewed the paper put forward by the working group setting out how last look may be used and in what way that might impact trade execution. The concept of ‘hold time’ was discussed both in terms of whether and how it should be defined and how it fits within the context of Code Principle 17. The Committee debated the relative merits of producing detailed guidance to promote greater clarity around last look practices against the risk of creating more complexity in what can be a technical subject. Ultimately members thought it was important to firmly anchor all guidance to the tenets of Principle 17 and noted the role transparent disclosures could play in allowing market participants to make informed choices.
Anonymous Trading: The FXJSC discussed the proposals relating to trading activity within semi-and fully anonymous environments, in particular around tag management, data sharing and identifying code signatories.
Disclosures: Following feedback received from the local Foreign Exchange Committees, the working group had produced an updated version of the Liquidity Provider’s disclosures cover sheet, and created an early draft of a disclosures cover sheet for venues. Updated proposed Code text changes for trade rejection information and handing of confidential information were also put forward. The FXJSC were supportive of the direction of travel.
Riskless Principal: A brief summary of the updated paper on Riskless Principal was provided to the FXJSC noting in particular the proposed glossary definition of Direct Market Access (DMA) algo and the updated illustrative examples of ‘good’ and ‘bad’ conduct.
Committee members were invited to provide written comments on the GFXC papers. An aggregated summary would be provided to the GFXC Secretariat ahead of the 29 March meeting.
Item 4 – Market Conditions: FXJSC Turnover Survey Results & Sterling 2021 Outlook
James O’Connor (Bank of England) delivered a presentation on the October 2020 FXJSC Turnover Survey Resultsfootnote  with a focus on sterling developments.
Overall, the average daily reported UK FX turnover had increased by 7% between April and October 2020 to $2.6 trillion, but there was a 10% year-on-year decrease on the all-time high figures reported in October 2019. Record highs had been seen in USD/CNY in October, with turnover rising 56% since April 2020 and 43% year-on-year. These increases were largely driven by FX spot and FX options trades, with turnover up 73% and 266% respectively since April 2020. Sterling activity had also risen significantly from April 2020 to October 2020, with GBP/USD overtaking USD/JPY as the second most widely traded currency pair in London. USD/EUR remained the most traded currency pair.
Members discussed possible drivers for the moves. To some extent, trading volumes had normalised relative to April, given that the low point in April reflected a natural drop off in activity after the Covid-related volatility in March.
With the survey month preceding the end of the UK EU transition period, the discussion focused on trends in sterling turnover, which had risen by 26%. Turnover in the majority of pairs involving sterling had risen, with USD/GBP and CAD/GBP seeing significant increases. EUR/GBP turnover also recorded an all-time high, with average daily turnover rising by 49% since April 2020, and 3% higher in comparison to October 2019.
Members discussed their perceptions of whether those trends had continued since the October survey, and provided some possible observations on Sterling performance in 2021, noting that sterling had been one of the strongest currencies year-to-date. The passing of events relating to the new UK/EU trading arrangement, and the UK’s vaccine rollout, were broadly considered as supportive factors, and levels of sterling implied volatility had fallen back slightly, to levels closer to other major currency pairs.
Item 5 – Settlement Risk
The Chair opened the discussion and noted that following the results of the 2019 BIS Triennial Survey, which showed an increase in the share of FX daily turnover being settled non-payment versus payment (non-PvP), there had been active discussions in the industry, including by the FXJSC, around the monitoring and management of FX settlement risk. Discussions at the September 2020 GFXC meeting led to agreement that central banks should work with market participants to capture more regular data on settlement methods, and that the Code’s guidance on settlement risk should be strengthened. Since then the BIS Markets Committee had agreed to include a regular section on FX settlement risk in future BIS Triennial Surveys, commencing 2022, and local FX committees had agreed to expand their surveys to capture settlement risk data.
Marc Bayle de Jesse (CLS) presented on a recent exercise CLS had undertaken in collaboration with a global bank Settlement Member (SM), to acquire a better understanding on how FX trades were settled in CLS eligible currencies. CLS presented the analysis, which identified categories of settlement activity and calculated the proportion of traded notional settled within each category. The analysis found more than half of eligible trades were settled via CLS, with a significant portion of the remainder being netted through some other means e.g. inter-branch trades or trades with clients that were settled via a net single currency cashflow.
One area where PvP did still have scope to grow was in Emerging Markets (EM) currencies. In 2020, CLS conducted an extensive engagement with its SMs regarding the current state of EM currency settlement processing and formed a CLS-led working group with participation from 12 global bank SMs. CLS was developing a new private-public partnership to address the remaining settlement risk in non-CLS currencies, engaging with key policymakers.
CLS confirmed its plans to complete two data analysis exercises with additional SMs in 2021, which would enable CLS to: validate findings; produce aggregated, anonymised data points; and contribute the combined findings / conclusions towards a range of key policy initiatives.
Item 6 – Legal Sub Committee Update
The Legal Sub-committee had met on 4 March 2021. Agenda items had included: a presentation on the Bank’s Meeting Varied People initiative; a presentation from Ashurst on legal and regulatory developments relevant to the FX market; and a readout by the FXJSC Secretariat from the GFXC meeting in December and preview of the upcoming meeting in March.
Item 7 – Operations Sub Committee Update
The Operations Sub-committee had met on 3 March 2021. Agenda items had included: a presentation on the FXJSC Turnover Survey Results; presentation by UK Finance on Brexit trade deals; an update on the FX Settlement Crisis Playbook; and a readout from the GFXC meeting in December and update on the GFXC 3-year review. The Sub-committee was finalising its forward agenda for 2021.
Item 8 – Update from the FCA – Written Procedure
The FCA encouraged attendees to refer to the recent announcement on the dates that panel bank submissions for all LIBOR settings would cease, after which representative LIBOR rates would no longer be availablefootnote .
Item 9 – Any Other Business
The Chair provided an update on the upcoming launch of the Bank’s Meeting Varied People virtual event planned for 21 April. Members of the Committee and Sub-committees would be invited to attend this event which aimed to diversify the Bank of England’s market intelligence external contacts and support more diversity amongst Markets’ committee membership, as well as support a pipeline of diverse talent to further encourage market-wide diversity.
The Chair noted that the FXJSC Secretariat would share the 2021 forward agenda and welcome any final suggestions from members.
Next FXJSC Meeting: 14 June 2021
Alan Barnes – Financial Conduct Authority
Andrew Hauser (Chair) – Bank of England
David Clark – European Venues and Intermediaries Association
Frances Hinden – Shell
Giles Page – Citigroup
James Kemp – FICC Markets Standards Board
John Blythe (Chair, Operations Sub-committee) – Goldman Sachs
Kevin Kimmel – Citadel Securities
Lisa Dukes – Drax
Marc Bayle de Jesse – CLS
Neehal Shah – BNP Paribas
Neill Penney – Refinitiv
Richard Bibbey – HSBC
Richard Purssell – Insight Investment
Rohan Churm – Bank of England
Russell Lascala – Deutsche Bank
Sarah Boyce – Association of Corporate Treasurers
Sian Hurrell – RBC
Simon Manwaring – Natwest Markets
Sophie Rutherford – State Street
Stephen Jefferies – JP Morgan
Wang Yan – Bank of China
Zar Amrolia – XTX Markets
Grigoria Christodoulou – Bank of England
James O’Connor – Bank of England
Jonathan Grant (Legal Secretariat) – Bank of England
Lauren Hustwitt – Bank of England
Alicia Krebs – CLS
Harri Vikstedt – Bank of Canada
Marcel Zimmermann – Swiss National Bank
David Edmunds – Bank of England
Galina Dimitrova – The Investment Association
Robbie Boukhoufane – Schroders
Sharon Blackman (Chair, Legal Sub-committee) – Citigroup