Settlement: Settle down
Given the size of the daily flow in the FX market, it is no wonder that settlement remains a thorny issue.
Several of the market big cheeses who are quoted in this week’s Q&A session mention it specifically, which is timely given that the Bank for International Settlements has just released the findings of its Committee on Payment and Settlement Systems (CPSS). In it, the central bankers highlight what they say is the need for further action to reduce settlement risk (see http://www.bis.org/publ/cpss83.htm). The detailed report describes how more than 100 active banks and other institutions market manage their settlement risks and it contains recommendations for individual institutions, industry groups and central banks to reduce and control remaining exposures that may still present systemic risk.
“The financial services industry has made significant progress in dealing with foreign exchange settlement risk. However, more can and should be done to tackle remaining exposures and to guard against the risk of reversing the progress that has already been achieved,” says Timothy Geithner, president of the Federal Reserve Bank of New York and CPSS chairman.
He adds: “Recent market conditions emphasise how important it is that the settlement infrastructure supporting financial markets is robust and reliable, so that markets have the confidence to function normally even in adverse circumstances.”