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

Minutes

Item 1 – Welcome and Apologies

Philippe Lintern (Chair, Bank of England) introduced Vicky Saporta as the new Executive Director of the Markets Directorate at the Bank of England. Mr Lintern also introduced Kate Hill (Aviva Investors), Sarah Collins (UBS Asset Management), Mani Natarajan (Morgan Stanley), and Jeremy Smart (XTX) as new members of the Committee.

Mr Lintern announced that George Johnston (Bank of England) had moved roles, and Sakshi Gupta would take over the Bank of England legal representation on the Committee. Mr Lintern thanked Mr Johnston for his contribution to the FXJSC and welcomed Ms Gupta to the Committee.

Mr Lintern welcomed Chris King (Dukes & King) and Tharidu Gamwara (JP Morgan) as observers.

Item 2 – November meeting Minutes, Terms of Reference Update & Diversity, Equity, and Inclusion (DE&I) action

The minutes of the 29 November 2023 meeting were approved.

The updated Terms of Reference were also approved. The updates introduced a two-year renewable membership term which would take effect from the beginning of 2025.

Mr Lintern asked Committee members to provide the Secretariat with contact details for DE&I leads at their respective firms to join a discussion on DE&I best practice.

Item 3 – FXJSC Turnover & FX Settlement Surveys

Natalie Lovell (Bank of England) gave a brief overview of the October 2023 FXJSC Turnover Survey results. Most of the results were in line with long-term survey trends. FX swaps remained the most traded instrument by turnover, at 46% of overall volume.

Ms Lovell explained that a new approach for collecting FX Settlement data had been trialled as part of the October 2023 FXJSC survey round.^{footnote [1]} Following the trial, the Reporting Template and Guidelines had been updated to incorporate feedback from market participants and other central banks. Ms Lovell highlighted that the new approach would be adopted by two additional central banks for the April 2024 survey round, and also used by the Bank for International Settlements (BIS) as part of its 2025 Triennial Survey.

Item 4 – Market Update

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.

Item 6 – Evolution of custody FX services

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.

Item 7 – FXJSC Sub-Committee updates

Sharon Blackman (Chair of the Legal Sub-Committee) noted the Sub-Committee had met on 5 March. Agenda items had included: an update on the FX Global Code review from Ms Lovell; and a review of recent UK and EU regulatory changes and their impact on the FX market from Allen & Overy LLP, including SA-CCR, accelerated securities settlement and the International Organization of Securities Commission’s (IOSCO) pre-hedging guidance.

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.

Item 8 – Regular Updates

Alan Barnes (Financial Conduct Authority (FCA)) noted that the UK’s Accelerated Settlement Taskforce’s report examining the case for the UK moving to an accelerated securities settlement cycle would be published shortly.

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.

Attendees

Alan Barnes – Financial Conduct Authority

James Kaye (Chair, FXJSC Operations Sub-committee) – HSBC

James Kemp – FICC Markets Standards Board

Jeremy Smart – XTX Markets

Kate Hill – Aviva Investors

Lisa Dukes – Corporate Representative - Association of Corporate Treasurers

Mani Natarajan – Morgan Stanley

Marc Bayle de Jesse – CLS

Mimi Rushton - Barclays

Neehal Shah – BNP Paribas

Nina Moylett – M&G plc

Paul Houston – CME Group

Philippe Lintern (Chair) – Bank of England

Rajesh Venkataramani – Goldman Sachs

Richard Purssell – Insight Investment

Sally Francis-Cole – London Stock Exchange Group

Sarah Collins – UBS Asset Management

Sharon Blackman (Chair, Legal Sub-committee) – Citigroup

Sophie Rutherford – State Street

Stephen Jefferies – JP Morgan

Vicky Saporta – Bank of England

FXJSC Secretariat

George Johnston (Legal Secretariat) – Bank of England

Sakshi Gupta (Legal Secretariat) – Bank of England

Laura Austin – Bank of England

Natalie Lovell – Bank of England

Sita Mistry – Bank of England

Guest attendees

Chris King – Dukes & King

Tharidu Gamwara – JP Morgan

Apologies

Galina Dimitrova – The Investment Association

Giles Page – Citigroup

Kevin Kimmel – Citadel Securities

Richard Bibbey - HSBC

Sarah Boyce – Association of Corporate Treasurers

Simon Manwaring – NatWest Markets