The Global FX Committee (GFXC) updated the FX Global Code after a three-year review. It introduces changes to enhance transparency and mitigate risks in the currency market, including:
- Trading platforms must clearly disclose how they use data from client transactions, particularly regarding order handling, fees, and post-trade reviews.
- The updates encourage a “hierarchy of settlement methods” and a risk waterfall approach, to address settlement risk, a significant concern due to increasing off-CLS trades.
- The GFXC has given firms a 12-month period to adjust to these changes, designed to improve transparency, efficiency, and risk mitigation in FX markets.
Alex Knight, head of EMEA at Baton Systems, said in emailed commentary: “The updates to the global FX code are a significant step forward in enhancing transparency and reducing risk in FX markets. It is now incumbent upon firms to use the next 12 months to implement the available solutions to facilitate payment-versus-payment (PvP) settlement. Even where PvP settlements aren’t yet available, most firms still have an opportunity to deploy technology to further de-risk their business through the use of real-time information to track and orchestrate settlements in a controlled manner, and to reduce the volume of business that is settled gross.”
Basu Choudhury, head of Trade Lifecycle Strategy at OSTTRA, said in emailed commentary: “Settlement risk and liquidity remains one of the most pressing challenges in the FX market, and the updated FX Global Code rightly prioritizes its mitigation. We see this as a pivotal moment to ensure market participants not only manage settlement risk but also optimize their FX liquidity comprehensively. Only by integrating tools to facilitate full visibility of exposures from point of execution with effective netting protocols and intraday FX payment-versus-payment (PvP) can firms be empowered to navigate future FX settlement challenges with greater confidence and precision.”