Date of meeting: 28 September 2023
Time: 2pm to 4pm | Location: Hybrid – London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS
Minutes
Item 1 – Welcome and Apologies
Andrew Hauser (Chair, Bank of England) introduced Paul Houston (CME Group) as a new member of the Committee and announced the departures of Robbie Boukhoufane (Schroders) and Yan Wang (Bank of China). Mr Hauser thanked both for their contributions to the FXJSC over the years.
Mr Hauser introduced Oliver McCausland (Financial Conduct Authority), Geoff Jones (LSEG) and Sam Lynton-Brown (BNP Paribas) as guest attendees; and Simon Conner (M&G) as an observer.
Item 2 – Minutes of the June Meeting
The minutes of the 28 June meeting were agreed.
Item 3 – Market Update
Stephen Jefferies (JP Morgan), Neehal Shah (BNP Paribas), and Sam Lynton-Brown (BNP Paribas) presented an update on recent market developments.
Mr Jefferies said that carry trades had been profitable for investors in 2023, especially in emerging market pairs, driven by higher levels and dispersion of interest rates. The profitability of such trades was expected to be more constrained going forward due to anticipated interest rate cuts in emerging markets. Mr Jefferies said G10 currency pair valuations had been driven primarily by the ongoing repricing of central bank rate expectations through 2022-23 – something which had also helped momentum strategies perform well. The Chinese renminbi had been impacted by a range of country-specific factors, including the central bank keeping Chinese policy rates lower than other global rates, the lower than anticipated Chinese growth, and payment flows out of China.
Mr Lynton-Brown noted that a measure of total excess liquidity across the United States, Eurozone, and Japan had remained stable over the last 12 months, as quantitative tightening in the West had been offset by the Bank of Japan’s continued easing, as well as other policy interventions in the United States. He expected that lower expected easing by the Bank of Japan in the coming year, coupled with ongoing tightening in the West, would begin to reduce global excess liquidity in the system, leading to higher and steeper yield curves.
Members discussed the themes raised in the presentation, including how a reduction in excess liquidity might impact the FX market.
Item 4 – Global Foreign Exchange Committee (GFXC) survey update
Philippe Lintern (Bank of England) provided an update on the latest GFXC survey, which was now out for response. The survey would inform the GFXC review of the FX Global Code in 2024.
Item 5 – Diversity, Equity and Inclusion Working Group Update
Sharon Blackman (Citi) and Philippe Lintern (Bank of England) gave an update on the work of the FXJSC Diversity, Equity and Inclusion (DE&I) Working Group, which had met twice since the June FXJSC meeting.
The Working Group had discussed supporting a cross FX market DE&I event in 2024 and organising a meeting of DE&I leads from member institutions to share best practice. The Working Group had also discussed a number of significant challenges to gathering diversity statistics for the FX market raised by member firms.
Item 6 – Introducing renewable membership terms
Andrew Hauser (Chair, Bank of England) noted that the FXJSC would be introducing two-year renewable membership terms, aligning the FXJSC with other foreign exchange committees. Mr Hauser noted that the new arrangements did not constitute a maximum term, and hence would not militate against the continued development of an experienced membership, something that had served the Committee well.
Item 7 – The implications for transparency and market functioning of the falling share of transactions going through primary venues
Paul Houston (CME), Kevin Kimmel (Citadel Securities), Sally Francis-Cole (LSEG), and Geoff Jones (LSEG) provided a presentation on the falling share of transactions going through primary venues and its implications for transparency and market functioning.
Members began by discussing some of the factors behind the declining share. On the one hand, as Mr Houston noted, market participants continued to value primary venues for offering prices that were executable, public (and hence could be used to benchmark trading performance) and resilient in times of market stress. On the other hand, as Mr Kimmel outlined, market structure had evolved materially in recent years, and secondary venues were perceived as often offering tighter spreads and greater ability to customise execution.
Members discussed whether a further decline in primary venue volumes would be a cause for concern. There were mixed views. Some members felt that price formation would migrate (indeed to some extent already had migrated) to other venues. The role of FX futures in price formation was discussed. Other members continued to see value in maintaining primary venues, as a single point of reference that could be relied upon in a stress. It was noted however that, as had been found in other asset markets, there was a tension between the value market participants placed on having access to reliable primary venue pricing, and the costs they felt they incurred from placing business through those venues.
Members welcomed the discussion. There was general agreement that this was a topic the Committee should continue to monitor.
Item 8 – FXJSC Sub-Committee Updates
Sharon Blackman (Chair of the Legal Sub-Committee) noted the Sub-Committee had met on 20 September. Agenda items had included: an update on Russian sanctions; and a discussion on the impact of shortening the securities settlement cycle in the US.
Kerry Peacock (Chair of the Operations Sub-Committee) noted the Sub-Committee had met on 21 September. Agenda items had included: a review of operational resilience and the crisis response framework; an update on the FX settlement survey; and a discussion of the questionnaire sent to members by CLS on the operational impact of it adjusting cut-off times in response to the shortening securities settlement cycle in the US.
Item 9 – Regular Updates
Oliver McCausland (Financial Conduct Authority) noted the work IOSCO was planning on pre-hedging. Mr McCausland said the work would build upon existing standards; IOSCO would likely consider approaches to disclosures, client consent, and demonstrating benefits to clients. The FCA would provide further updates as the work progressed.
The Committee received a written update on the GFMA’s considerations for FX of the global shift towards shortening securities settlement cycles.
Item 9 – Any Other Business
Next meeting date: Wednesday 29 September 2023. This would be a special event marking the FXJSC’s 50th anniversary.
Attendees
Andrew Hauser (Chair) – Bank of England
David Clark – Refinitiv Benchmark Services Ltd
Galina Dimitrova – The Investment Association
Giles Page – Citigroup
Kerry Peacock (Chair, FXJSC Operations Sub-committee) – MUFG Bank
Kevin Kimmel – Citadel Securities
Lisa Dukes – Corporate Representative - Association of Corporate Treasurers
Marc Bayle de Jesse – CLS
Neehal Shah – BNP Paribas
Nina Moylett – M&G plc
Paul Houston – CME Group
Philippe Lintern – Bank of England
Rajesh Venkataramani – Goldman Sachs
Richard Purssell – Insight Investment
Sally Francis-Cole – London Stock Exchange Group
Sarah Boyce – Association of Corporate Treasurers
Sharon Blackman (Chair, Legal Sub-committee) – Citigroup
Simon Manwaring – NatWest Markets
Stephen Jefferies – JP Morgan
Yan Wang – Bank of China
FXJSC Secretariat
George Johnston – Bank of England
Laura Austin – Bank of England
Sam Hewgill – Bank of England
Sita Mistry – Bank of England
Guest attendees
Geoff Jones – London Stock Exchange Group
Sam Lynton-Brown – BNP Paribas
Simon Conner – M&G (Observer)
Oliver McCausland – Financial Conduct Authority
Apologies
Alan Barnes – Financial Conduct Authority
James Kemp – FICC Markets Standards Board
Richard Bibbey – HSBC
Sophie Rutherford – State Street
Zar Amrolia – XTX Markets