GFXD Report Investigates Accelerated Settlement’s Impact on FX

A new report from the Global FX Division, Wholesale FX: Ready for Real-Time? – Priorities for Trading and Post-Trade Transformation, studies the potential impact on FX markets from accelerated settlement times, including real-time settlement, noting, “Any material moves towards shorter settlement cycles, extended operating hours, digital money or new settlement rails must be assessed carefully to ensure that increased speed and automation do not create wider operational, liquidity, credit, market or settlement risk.”

The paper notes that a central requirement for any future market structure will be the ability of each market participant to trade and make prices with confidence, supported by timely and accurate access to the data it requires on its own positions, available balances, settlement obligations and applicable risk limits.

GFXD says that since its 2023 paper on accelerated FX settlement, market participants have continued to assess and implement technology-enabled trading and settlement models to reduce costs, improve efficiencies and access new revenue generating opportunities. It also observes that “some” buyside organisations are already using digital assets and digital-asset infrastructure in defined use cases, while developments in tokenised assets, digital money and payments infrastructure are contributing to demand for shorter settlement cycles, extended trading windows and new asset classes.

“The extent to which these developments reduce costs, reduce risk or increase market activity will depend on product economics, legal and regulatory treatment, settlement design, operational readiness and market adoption,” the paper states.

The paper uses working assumptions and scenarios to assess the practical implications that may arise if wholesale FX activity moves towards longer operating hours, shorter settlement cycles, greater use of digital money or multiple fragmented trading and settlement channels. GFXD says the analysis points to three priority “no-regret” capabilities, namely more efficient data exchange across trading, post-trade, credit, treasury and nostro providers; greater automation and reduced manual exception processing within compressed timeframes: and more resilient systems where continuous or extended operation is required.

An Annex provides the detailed trading and post-trade analysis behind these priorities and can be used by market participants as a practical planning checklist.

GFXD says that public sector engagement will also be important where safe and scalable development depends on legal certainty, supervisory consistency, settlement finality, access to payment and settlement infrastructure, and cross-border alignment. “GFXD encourages continued public-private sector discussion on these issues to support the safe evolution of wholesale FX,” it states, adding that it “looks forward to continuing discussions with regulators, supervisors, and other market participants on these types of issues and the other topics raised in this paper”.

The full paper can be accessed here