Minutes of the London FXJSC Operations Sub-committee Meeting – 28 February 2024

Minutes

Minute 1 – Welcome and Apologies

James Kaye (Chair, HSBC) introduced Gemma Webb Spooner (Bank of England), Louise Lee (Bank of England), Rachel Harding (Bank of England), and Rachel Stevens (Bank of England) as presenters. The Chair further noted that no observers had joined the meeting, and welcomed members to bring observers to the next meeting in June. The Chair also noted apologies from those unable to attend (listed at the end of the minutes).

Minute 2 – Minutes of the November Meeting and feedback from the November Main FXJSC Committee meeting

The minutes of the 22 November 2023 meeting were agreed by Committee members.

The Chair noted that the November Main Committee had been a shorter meeting due to the FXJSC 50th anniversary event. The main discussion topics had included key themes for FX markets going forward, risk mitigation solutions for currencies not covered by Payment versus Payment (PvP) providers, the potential impact of technological changes on FX intermediation, and a trend amongst asset managers to move back to managing FX in-house.

Minute 3 – Investment Association update

Alex Chow provided an update on Investment Association member firms’ preparations for the US move to T+1 securities settlement which was due to go-live on 28 May 2024. It was noted that some larger member firms had established US operations with a view to processing all FX transactions ahead of the 6pm EST CLS deadline for next-day settlement. Medium-sized members were planning to process as many FX transactions as possible ahead of the CLS deadline and use T0 settlement for any remaining FX transactions. Smaller members were exploring the use of FX custodians.

Mr Chow highlighted that the UK Accelerated Settlement Taskforce had progressed its thinking around accelerated securities settlement and was due to publish its report and recommendations within the next week. Mr Chow invited Committee members to join the UK Accelerated Settlement Taskforce’s FX technical group led by Andrew Harvey (Global Financial Markets Association (GFMA)).

Minute 4 – CLS update

John Hagon (CLS) provided updates on service levels, resilience, and T+1 securities settlement. Disruption to CLS settlement and funding had peaked in 2023, however there had only been one delay to settlement in 2024. Mr Hagon noted that CLS had been promoting uptake of CLSNet to help mitigate settlement risk associated with non-eligible CLS currencies, and that a significant buy-side firm was expected to adopt CLSNet within the next few months.

Mr Hagon noted that CLS had executed a successful market wide test of Member Replay at the end of 2023. As part of the test its 74 members had successfully demonstrated the ability to replay a set of Instructions (trades) in response to a data recovery scenario affecting CLSSettlement. Another test was planned for later this year, and it was noted that going forward these tests would be an annual occurrence.

Mr Hagon further noted that CLS continued to migrate to new and improved data centres for the CLSSettlement service with a target completion date of 2026. CLS was also working to introduce an alternative processing site by the end of 2024, subject to testing and relevant regulatory approvals.

Finally, Mr Hagon said that CLS had continued to review the results of its survey on the potential implications of the move to T+1 securities settlement on CLS cut-off times. He cited marked differences in member responses to the survey, and said that any changes to cut-off times were extremely unlikely ahead of US T+1 go-live at end-May.

Minute 5 – GFXD update

Steve Forrest (UBS) gave an overview of the most recent GFMA FX Operations Committee. He noted that ISDA had provided an update on planned changes to its ISDA Definitions. The move to T+1 securities settlement had also been discussed and the consensus view had been that if there was an additional demand for liquidity, then liquidity pools would adapt to accommodate that demand.

A working group has been established amongst certain members to discuss how best to improve velocity of interest claim resolution. It is also planned to consult with the International Securities Association for Institutional Trade Communication (ISITC) on the possibility of increasing the current $500 threshold for interest claims to $1000 in light of higher interest rates globally.

Finally, the June International Monetary Market (IMM) day was discussed. Mr Hagon noted that CLS was comfortable with the capacity of its systems to deal with the anticipated material increase in settlement volumes.

Minute 6 – FCA update

Oliver McCausland (FCA) noted that the FCA published a consultation in December last year on the transparency regime for bond and derivates markets (CP23/32). The purpose of the consultation was to improve the transparency regime in response to issues identified in the previous Wholesale Markets Review published on 01 March 2022. Mr McCausland further noted that the FCA was currently welcoming market participant views on the current level of transparency in FX derivatives markets.

Minute 7 – UK Finance update

Lorraine O’Donnell (UK Finance) noted that UK Finance had held a number of symposiums with critical FMI’s (CLS and CHAPS) and more recently with Amazon Web Services (AWS) to discuss resilience and impact tolerances. Ms O’Donnell also noted that there are plans to follow up with meetings between core firms and Financial Markets Infrastructure providers (FMIs), for example with CLS, to discuss impacts and timeframes against critical scenarios. Noting the SIMEX exercise (a sector resilience exercise) planned for later this year, firms have expressed strong appetite to proceed with a separate exercise that would fulfil their operational resilience testing requirements in the lead up to final implementation preparations. UK Finance plan to run an Operational Resilience Implementation Exercise (ORYX) in parallel to SIMEX, with proposed delivery date by end of H1 2024.

Minute 8 – FX settlement survey

Natalie Lovell and Matthew Conway (Bank of England) gave an update on the new approach to gathering FX settlement data which had been trialled as part of the October 2023 FXJSC survey round. It was noted that feedback from Reporting Dealers and other central banks had been used to inform updates to the Reporting Template and Guidelines ahead of the April 2024 reporting round. The structure of the Reporting Template remained unchanged, and updates to the Guidelines were aimed at improving clarity in certain areas, such as the treatment of back-to-back and compression trades.

Ms Lovell explained that it had been agreed at the November/December 2023 Global Foreign Exchange Committee (GFXC) meeting that, where possible and subject to readiness, central banks that already conduct, and co-ordinate semi-annual FX surveys would adopt the new approach for collecting FX settlement data for firms headquartered in their jurisdiction for the April 2024 round. Ms Lovell noted that the BIS would also adopt the new approach for the 2025 Triennial survey.

Minute 9 – 3-month forward event review

The Chair introduced a 3-month forward event review proposal as a way for Committee members to engage with and discuss events that could impact operations in FX markets, such as the upcoming Juneteenth IMM day. Members agreed with the proposal and the Secretariat agreed to take an action to consider how the forward planner would be updated and shared with Committee members.

Minute 10 – ISO20022 and the coexistence of MT settlement and MX payments

Rachel Stevens (Bank of England) presented on ISO 20022 and the coexistence of MT settlement and MX payments. Ms Stevens noted that from November 2025, MT 1, 2 and 9 series messages would be decommissioned by SWIFT and replaced by new ISO 20022 MX messages. The risk of confusion around terminology when confirming trade details was highlighted as one of the potential risks.

Joe Halberstadt (SWIFT) pointed Committee members to SWIFT’s standards documentation, and in particular SWIFT’s CBPR+ documentation which contains examples of specific payment scenarios including FX scenarios. Mr Halberstadt also noted that message usage guidelines for MT300 messages were being updated to reflect usage alongside MX payment messages.

Gavin Platman (Insight Investment) noted that small custodians would likely lag behind larger institutions in adopting MX messages for payments. The Chair noted that he would consult internally within HSBC and share any relevant feedback on the issues raised during the discussion.

Minute 11 – Any Other Business

Adam Dukes informed committee members that he would be stepping down from FXJSC Operations Sub-Committee. Committee members thanked Adam for his contribution to the Committee over the past seven years.

Attendees

Aaron Mills – Citadel

Adam Jukes – Deutsche Bank

Alex Chow – Investment Association

Andrew Batchelor – LCH

Anna Chadderton – Goldman Sachs

Claire Forster-Lee – Morgan Stanley

Gavin Platman – Insight Investment

James Kaye (Chair) – HSBC

Joe Halberstadt – SWIFT

John Hagon – CLS

Oliver McCausland – FCA

Steve Forrest – UBS

FXJSC Secretariat

Hana Mori (Legal representative) – Bank of England

Joe Hearn – Bank of England

Natalie Lovell – Bank of England

Zish Jooma – Bank of England

Alternates

Lorraine O’Donnell – UK Finance

Guest attendees

Gemma Spooner Webb – Bank of England (Presenter)

Louise Lee – Bank of England (Presenter)

Matthew Conway – Bank of England (Presenter)

Rachel Stevens – Bank of England (Presenter)

Apologies

Andrew Grice – Bank of England

Andrew Rogan – UK Finance

Boyd Winston – JP Morgan

Fiona O’Riordan – Citi

Gail Smith (Deputy Chair) – RBC

Kerry Peacock (Deputy Chair) – MUFG

Mike Irwin – XTX Markets