Swift has issued a report arguing in favour of greater standardisation of messaging within the FX market, claiming that this will in turn cause greater automation and improve efficiency.
In the report, Swift notes that the sheer volume of FX transactions that occur daily makes automation in this market challenging.
“With millions of confirmation messages being exchanged every trading day, discrepancies in even one per cent translates into tens of thousands of potential settlement failures every day,” it says in the report, adding “The value of standards in mitigating this risk are obvious. Industry standard documents provide a ready-made basis for mutual agreements to trade, so trade capture systems can book the terms automatically. Standard confirmation messages then make it easy to identify discrepancies, while guaranteeing the secure and authenticated exchange and settlement of currencies.”
Swift argues that through such automation the opportunity to improve operational, commercial and financial performance “remains immense”, and the key to achieving this, the report says, is improving standards by collaborating with the FX industry “to identify operational bottlenecks, inefficiencies and manual processes, and to agree on mechanisms for improvement”.
The report adds: “Whilst Swift itself implements changes to the message standards, input and authority to do so come from the industry.”
Thus, while Swift says that its 2019 Standards Release will “herald new changes to facilitate the automation of the matching process that enables an FX trade to be confirmed”, further standards evolution will be required to keep pace with the commercial, operational and regulatory changes affecting the global FX market.
Juliette Kennel, head of securities and FX markets at Swift, comments: “While there is a high level of automation in FX markets already, the industry cannot be complacent and must work together to remove the remaining barriers to efficient exchange. Increased levels of automation through more use of and better use of standards will unlock higher operational, commercial and financial performance for all participants in the global FX market.”
Kennel continues: “Swift is adapting standards used in FX, in conjunction with industry, to lower the cost of doing business, increase returns on investment and reduce the levels of risk involved, but there is more to do. Industry must collaborate further to enhance standards by identifying the operational bottlenecks and barriers to great efficiency for all.”