Minutes of the London FXJSC Main Committee Meeting – 28 June 2023

Minutes

Item 1 – Welcome and Apologies

Andrew Hauser (Chair, Bank of England) introduced two new members of the Committee: Sally Francis-Cole (LSEG) and Kerry Peacock (MUFG and Chair of the FXJSC Operations Sub-Committee). Mr Hauser introduced the guest attendees: Charlie Geffen (Chair of the UK Accelerated Settlement Taskforce), Sachin Mohindra (Goldman Sachs), Michael Metcalfe (State Street), Paul Mackel (HSBC) and Keith Tippell (CLS). Mr Hauser also welcomed Chloe Haynes (Goldman Sachs) and Clara Williams (BNP Paribas) as observers.

Item 2 – Minutes of the March Meeting

The minutes of the 6 March meeting were agreed.

Item 3 – Market Update

Michael Metcalfe (State Street) and Paul Mackel (HSBC) presented an update on recent market developments. Broad financial market conditions had largely normalised since the banking sector stress in March 2023. FX market liquidity had held up well during this period of increased volatility.

Mr Mackel said that the explanatory power of rates and equities for the US dollar had diminished, and the correlation between US bond yields and equities had become less consistent. Emerging markets had seen only moderate bond inflows despite high nominal and real yields. Mr Mackel also noted that yield differentials between China and the US would likely weigh on the Renminbi.

Members discussed why FX volatility had remained low despite large moves in fixed income markets. Members agreed that relatively correlated policy cycles, coupled with a lack of directional conviction about the economic outlook had led to a lack of positioning, in particular from institutional investors, and no clear trend for the US dollar.

Item 4 – Diversity, Equity and Inclusion Working Group Update

Philippe Lintern (Bank of England) gave an update on the work of the FXJSC Diversity, Equity and Inclusion (DE&I) Working Group. The Working Group had met in April and discussed the potential actions the Committee could consider to increase the diversity of its membership and support DE&I initiatives across the wider FX market.

Mr Lintern noted that, with the help of FXJSC members, progress had been made on establishing a diverse pipeline of potential future Committee members. The Committee agreed that improved statistics on the diversity of the various constituent parts of the FX market would be beneficial. The Committee discussed proposing the inclusion of DE&I in the next review of the Global FX Code, as had been done for the UK Money Markets Code.

Item 5 – Global Foreign Exchange Committee Update

It was noted that an update from the June 2023 Global Foreign Exchange Committee meeting would be provided to Committee members by written procedure.

Item 6 – The implications for FX markets of shortening Securities Settlement Cycles

James Kemp (FICC Markets Standards Board (FMSB)) provided an update on the planned U.S. Securities and Exchange Commission (SEC) shortening of the US standard securities settlement cycle to one business day after the trade (“T+1”). Mr Kemp noted the recent Global Foreign Exchange Division (GFXD) paper considering possible impacts on the FX market. The paper noted potential operational and workflow challenges for non-US asset managers to execute securities transactions and any related FX transactions as close to each other as possible to meet CLS cut-off times.

Charlie Geffen introduced himself as the Chair of the UK Accelerated Settlement Taskforce. He explained that, in parallel to developments in the US, his Taskforce was examining the case for trades to be settled more quickly in the UK, including moving to T+1 settlement, and how this might be implemented. The Taskforce’s initial findings would be published by December 2023, with a full report and recommendations made by December 2024. Sachin Mohindra (Goldman Sachs) provided a brief update on work that other jurisdictions were doing on this topic.

Members discussed some of the key considerations of a move to T+1 settlement for the FX market and the steps needed to ensure preparedness of the asset management community. The need to manage the potential for increased settlement risk was highlighted, if shortened securities settlement cycles led some FX transactions to miss the CLS cut-off times. Members also noted the need to accelerate process for remediating errors between trade execution and settlement. Members judged that these operational issues were likely to be manageable, but would require cross-market co-ordination to ensure relevant market participants were aware of the implications, and took steps to put appropriate mitigants in place.

Mr Geffen welcomed the discussion, and said he would ensure the key messages raised were fed back to the UK Taskforce.

Item 7 – FXJSC Sub-Committee Updates

Sharon Blackman (Chair of the Legal Sub-Committee) said the Sub-Committee had met on 21 June. Agenda items had included a discussion on the Bank of England’s Meeting Varied People (MVP) initiative and a discussion on the proposed ISDA FX definitions.

Kerry Peacock (Chair of the Operations Sub-Committee) said the Sub-Committee had met on 15 June. Agenda items had included a discussion on potential changes to the FXJSC Turnover Survey, and an operational resilience update following the 2022 Simulation Exercise (SIMEX22).

Item 8 – Regular Updates

Alan Barnes (Financial Conduct Authority) noted that the FCA was due to publish a policy statement including new guidance on the regulatory perimeter for trading venues. The guidance would provide clarity on when firms may be operating a multilateral system and therefore need to be authorised as a trading venue.

James Kemp (FMSB) provided an update on ESMA’s recent consultation on pre-hedging and the ongoing FMSB cross asset work – which included an FX example.

Item 9 – Any Other Business

Next meeting date: Thursday 28 September 2023

Attendees

Andrew Hauser (Chair) – Bank of England

Alan Barnes – Financial Conduct Authority

David Clark – Refinitiv Benchmark Services Ltd

Giles Page – Citigroup

James Kemp – FICC Markets Standards Board

Kerry Peacock (Chair, FXJSC Operations Sub-committee) – MUFG Bank

Kevin Kimmel – Citadel Securities

Lisa Dukes – Corporate Representative - Association of Corporate Treasurers

Neehal Shah – BNP Paribas

Philippe Lintern – Bank of England

Rajesh Venkataramani – Goldman Sachs

Richard Bibbey – HSBC

Russell Lascala – Deutsche Bank

Sarah Boyce – Association of Corporate Treasurers

Sally Francis-Cole – London Stock Exchange Group

Sophie Rutherford – State Street

Stephen Jefferies – JP Morgan

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

Simon Manwaring – Natwest Markets

Yan Wang – Bank of China

Zar Amrolia – XTX Markets

FXJSC Secretariat

George Johnston – Bank of England

Hamzah Abbas – Bank of England

Joe Hearn – Bank of England

Natalie Lovell – Bank of England

Shaun Odili – Bank of England

Sita Mistry – Bank of England

Zish Jooma – Bank of England

Guest attendees

Charlie Geffen – Chair of UK Accelerated Settlement Taskforce

Hugo Gordon – The Investment Association

Keith Tippell - CLS

Michael Metcalfe – State Street

Paul Mackel – HSBC

Sachin Mohindra – Goldman Sachs

Chloe Haynes – Goldman Sachs (Observer)

Clara Williams – BNP Paribas (Observer)

Apologies

Galina Dimitrova – The Investment Association

Marc Bayle de Jesse – CLS

Nina Moylett – M&G plc

Richard Purssell – Insight Investment

Robbie Boukhoufane – Schroders