ACI to develop new spot FX standards
Global financial markets association ACI is developing a handbook to define spot foreign exchange across currencies and geographies in an effort to remove some of the complexity from electronic trading and provide greater clarity on the definition of spot transactions.
The ACI will collate data from its 13,000 members and other sources to establish a set of definitions of spot FX, including settlement arrangements and other data, for various currency pairs. It hopes the industry will agree to implement this single set of standard definitions to create a consistent approach to trading the product across the multitude of electronic trading platforms in the market.
“The handbook will have a set of principles behind the common definitions of spot for various currency pairs, what the settlement arrangements are, whether they’re CLS candidates, and so on. It will be a useful thing for the market, and it might also provide an opportunity for the platforms to harmonise on a set of definitions that would hold good across the industry,” explains David Woolcock, global head of sales and business development at Eurobase Banking Solutions in London, and vice-chair of the ACI FX Committee, which is undertaking the project.
The project is an extension of the work carried out over the past year by ACI Russia to agree a standard spot date for offshore and onshore ruble, adds Stéphane Malrait, global head of fixed income and currencies e-commerce at Société Générale Corporate and Investment Banking and chair of the ACI FX Committee. After agreeing a convention of T+1, and working with the local regulators and associations to validate that, the association then approached the major trading platforms to incorporate the standard into their trading protocols.
“It worked very well and we had a good response back from the platforms, and from the buy and sell side, so we thought we should try to do that on a much larger scale for a lot more emerging market currencies where we have similar issues,” says Malrait.
The standards could aid co-operation between market participants and regulators struggling to determine whether certain FX products qualify as spot and are therefore exempt from various requirements under the US Dodd-Frank Act, Malrait adds. They will also be useful for those working to meet trade reporting requirements under the European Market Infrastructure Regulation, which holds both parties to a trade accountable for reporting, raising issues about how they will ensure the identifiers they use will match.
“If the bank thinks a trade is T+2 and the client thinks it is T+3, they are both going to report a different value date and those trades will never match. We need to ensure everyone is reporting using the same standard,” he says.
ACI aims to provide information on the full range of African currencies, and will be focusing heavily on Asian currencies as well. It will also be getting a complete update on how all non-deliverable forwards are traded. Work on the spot FX handbook will begin on June 20, and the results are expected to be published by the end of the year.
This article was first published on FX Week