Minutes of the London FXJSC Main Committee Meeting – 6 March 2023

Mimi Rushton (Barclays) and Rajesh Venkataramani (Goldman Sachs) presented an update on recent market developments.

The presenters noted that Federal Reserve monetary policy rate expectations had been the key driver of recent FX price action. Members discussed that FX positioning volumes had been low, driven by the market waiting for any divergence between central bank policy rate expectations.

Members discussed the drivers of the low FX volatility environment, including the current synchronisation between central bank monetary policy, and FX market efficiency gains over the last decade. Members discussed whether there had been a structural decline in volatility and the potential impact of the various 2024 elections.

Members noted the falling share of transactions going through primary venues as banks had internalised more FX trades. Members discussed whether the decline in primary venue volumes reflected a structural change in the market. Mr Lintern recalled the primary venues discussion at the September 2023 FXJSC meeting.

Item 5 – Update on FX Global Code review

Ms Lovell provided an update on the Global Foreign Exchange Committee’s (GFXC) priorities for 2024. Ms Lovell noted that there would be a targeted review of the FX Global Code, and areas of GFXC focus would include further mitigating FX settlement risk and enhancing FX data transparency. The Motivation for Adherence Working Group would also continue its outreach activities to increase awareness of the Code and its related materials, including the Disclosure Cover Sheets. The GFXC would also consider whether the Last Look and Pre-hedging guidance papers should be explicitly linked to the Code.

Richard Purssell (Insight), Nina Moylett (M&G) and Sophie Rutherford (State Street) presented an overview on the evolution of custody FX services.

Mr Purssell explained that custody FX was an automated execution solution offered by custodians for security related FX and income repatriation activities. It was noted that although the asset owner was typically the custodian’s client, responsibility for custodian oversight would fall to the asset manager.

Mr Purssell highlighted that the level of data transparency around trade execution and the use of sub-custody services varied between custodians. As a result, some asset managers were moving back to managing FX in-house. Members noted that utilising custody FX reduced operational risk, especially for emerging market and restricted currencies.

Ms Moylett noted that there was limited data available on how much FX flow is managed by custodians in relation to the overall FX market. Members discussed the potential impact on the FX market should the custody FX model be disrupted and agreed it would be limited to a change in the way the transactions were executed.

James Kaye (Chair of the Operations Sub-Committee) noted the Sub-Committee had met on 28 February. Agenda items had included: accelerated securities settlement; an update on the FX Settlement Survey; the upcoming review of the FX settlement crisis playbook; ISO 20022; and a review of the potential operational impact of upcoming events.

Mr Barnes also noted that the FCA was reviewing comments on the responses received by IOSCO from regulatory authorities and market associations on its pre-hedging questionnaire. Mr Barnes added that IOSCO’s work could lead to strengthened pre-hedging standards, albeit leveraging existing market codes of conduct.

James Kemp (FMSB) noted work was underway by the Global Foreign Exchange Division (GFXD) to review existing guidance for resolving interest compensation claims. Mr Kemp also noted that a GFXD DE&I Next Step FX event would take place on 6 June 2024. The aim of the event would be to attract new talent to the FX industry.