Minutes of the London FXJSC Operations Sub-committee Meeting – 21 September 2023

Minutes

Minute 1 – Welcome and Apologies

James Kaye (Deputy Chair, HSBC) welcomed new members Aaron Mills (Citadel), Alex Chow (Investment Association), Andrew Batchelor (LCH), Anna Chadderton (Goldman Sachs), and Fiona O’Riordan (Citi). The Deputy Chair also welcomed guest presenters Daniel Fajuke (Bank of England) and Lisa Danino-Lewis (CLS), and observers Aparna Shrivastava (Morgan Stanley), James Andrews (JP Morgan), and Rita Davy Sen (HSBC).

Minute 2 – Minutes of the March Meeting and feedback from the June Main FXJSC Committee meeting

The minutes of the 15 June 2023 meeting were agreed.

The Chair updated members on the June Main FXJSC Committee meeting, and discussions regarding the potential impact of a shortened securities settlement cycle (T+1) on FX markets. The Chair noted that the UK Accelerated Taskforce – examining the case for trades to be settled more quickly in the UK – would publish its initial findings by December 2023.

Members discussed buy-side preparedness and the potential for increased settlement risk. It was noted a shorter settlement cycle could result in some FX transactions settled on a Payment versus Payment (PvP) basis missing CLS’ 6pm ET cut-off time. Further, variability in custodian bank settlement deadlines was highlighted. Alex Chow (Investment Association) noted that members of the Investment Association were engaging with custodian banks on this topic.

Andrew Cooper (CLS) and Lisa Danino-Lewis (CLS) informed the Committee that CLS were engaging key stakeholders to better understand the impact and risks of extending CLS’ cut off times, noting that their analysis had shown circa. 1% of current flows would be impacted by the move to T+1 settlement. They noted that it would be challenging to change cut-off times ahead of May 2024.

Minute 3 – Update on Sector Response Framework and resiliency work

The Chair informed members of an upcoming test of the Automated Notification Tool (ANT) system and asked for volunteers from the sub-committee to form a working group to help update the FXJSC crisis management playbook.

Minute 4 – Feedback on Market Conditions update agenda item

The Deputy Chairs requested feedback from members on the standing markets conditions update agenda item. Members discussed focusing updates to a greater extent on events with operational implications. During the discussion it was noted that the June 2024 IMM (International Monetary Market) date would fall on the US’ “Juneteenth” holiday, and that there may be implications associated with this.

Minute 5 – FXJSC FX Settlement Data

Daniel Fajuke (Bank of England) provided an update on efforts to improve data collected in relation to FX settlement risk and thanked members of the Operations Committee for their input. Mr Fajuke explained that a new reporting template and guidelines were being trialled as part of the October 2023 FXJSC Survey round. In terms of next steps, the template and definitions would be further refined following feedback from participating reporting dealers.

Minute 6 – Standardised FX reject codes

Alex Chow updated the Committee on the Investment Association’s ongoing work to standardise FX reject codes. Mr Chow noted that the Investment Association had continued to engage with sell-side firms on the standardisation of reject codes, and that there would be renewed effort this area in the near future.

Minute 7 – FCA Regulatory Update

Oliver McCausland (FCA) highlighted the International Organization of Securities Commission (IOSCO) review of pre-hedging practices which would build on work already done on this topic. Mr McCausland noted that the key areas of focus of this work would likely include disclosure, client consent, and demonstrating benefit to clients.

Minute 8 – Education & Outreach

GFXD Update

Steve Forrest (UBS) updated members on the GFXD’s 2024 agenda. Key topics included FX settlement risk, real-time nostro reconciliation, and the potential impact of the move to T+1 securities settlement in the US. The operational challenges associated with interest claims as a result of increased settlement fails were also discussed.

CLS Update

Andrew Cooper (CLS) provided an update on CLS’ resilience programme on recovering from data corruption, which included checkpoint recovery and dynamic cold start tests. Mr Cooper also noted the highest number of late payment incidents than recent years with a number of pay-in calls having been issued in the last 12 months, the time before this was in 2016. The cause of these incidents was discussed, including major change e.g. ISO20022 migration in Europe, and the need take a collective approach to highlighting industry-wide issues.

UK Finance Update

Andrew Rogan (UK Finance) updated members on the recent symposium that brought together CLS and its direct participants to discuss CLS’s approach to operational resilience, including its underlying severe-but-plausible scenario planning assumptions. Mr Rogan also updated members on UK Finance’s activities in relation to the EU’s Digital Operational Resilience Act (DORA). Finally, Mr Rogan highlighted that UK Finance was in the process of collecting industry feedback on the recent RTGS outage.

Investment Association update

Alex Chow (IA) noted that IA members had discussed the challenges associated with the new European Market Infrastructure Regulation (EMIR) reporting rules for derivatives that would come into force part way through 2024.

Minute 10 – Any Other Business

The Chair informed the Committee that he would remain Chair until year-end and would be replaced by James Kaye (HSBC) in the new year. Members were also reminded about the GFXC Global Code Survey which had launched on 20 September.

Attendees

Aaron Mills – Citadel
Alex Chow – Investment Association
Andrew Grice – Bank of England
Andrew Rogan – UK Finance
Anna Chadderton – Goldman Sachs
Boyd Winston – JP Morgan
Claire Forster-Lee – Morgan Stanley
Fiona O’Riordan – Citi
Gail Smith (Deputy Chair) – RBC
James Kaye (Deputy Chair) – HSBC
Joe Halberstadt – SWIFT
Kerry Peacock (Chair) – MUFG
Oliver McCausland – FCA
Steve Forrest – UBS

FXJSC Secretariat

Enyi Chen – Bank of England
Joe Hearn – Bank of England
Matthew Hartley (Legal representative) – Bank of England
Natalie Lovell – Bank of England
Zish Jooma – Bank of England

Guest attendees

Andrew Cooper – CLS (Alternate)
Aparna Shrivastava – Morgan Stanley (Observer)
Daniel Fajuke – Bank of England (Presenter)
James Andrews – JP Morgan (Observer)
Lisa Danino-Lewis – CLS
Rita Davy Sen – HSBC (Observer)

Apologies

Adam Jukes – Deutsche Bank
Andrew Batchelor – LCH
Gavin Platman – Insight Investment
John Hagon – CLS
Mike Irwin – XTX Markets
Terri van Praagh – Northern Trust