A rough 2 trillion dollars per day, of settlement-risk exposures in connection with foreign-exchange transactions outside the industry’s risk-mitigating CLS utility, are a main target as the Global Foreign Exchange Commitee (GFXC) publishes updates to 5 of the 55 principles in its FX Global Code. 

The FX Global Code, launched in 2017, is now updated with the outcome of its 2024 review, following a three-year cycle. 

“Despite industry efforts over the last few years, there is still a material amount of unmitigated FX Settlement Risk in the financial system. The GFXC therefore identified a need to further strengthen the Code’s guidance on FX Settlement Risk mitigation. Amendments were made to Principle 35 to introduce a risk waterfall approach whereby Market Participants should consider a specified hierarchy of settlement methods for reducing FX Settlement Risk. The amendments to Principle 35 also encourage Market Participants to conduct regular reviews of their FX settlement practices and make it clear that all Market Participants have a responsibility for reducing FX Settlement Risk,” states the committee in its 16-page outcomes paper

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The settlement-focused adaptations also develop the guidance on how market participants should measure and control their FX settlement risk, and on how best to apply standard settlement instructions (SSIs). 

So how do trading platforms share your data?

The policy update has also moved the framework into more detail on how operators of FX e-trading platforms should be more transparent on how they use and share data that is generated by their clients and their activities. 

The global volumes of foreign currency exchange are regularly tracked by the Bank of International Settlement, with a summary of its April 2022 assessment available here

This PostTrade 360° deep look article and this PostTrade 360° Nordic 2024 conference session have discussed the relation of the FX processes to securities settlement. As a securities transaction needs to be paid with a certain currency, it will often trigger the need for a rapid FX transaction within the settlement time frame – a time frame that is getting tighter with the trend towards shorter settlement cycles such as T+1, raising questions of real-time access to good-enough liquidity pools.