American ExpressAmerican ExpressAmerican ExpressAmerican ExpressAmerican Express
United StatesChange Country

SWIFT Pushes for Forex Trading Efficiency and Collaboration

By Megan Doyle

With 180 currencies in circulation and participants from various industries around the world, global forex trading is, by nature, complex. But complexity often breeds errors and inefficiencies, which can lead to settlement failures and other risks. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) has worked to ease forex trading complexities since the 1980s, when it introduced its first foreign exchange confirmation message to enable automation in forex trading strategies. To this day, SWIFT continues to adapt and develop standards to keep pace with the operational and regulatory changes—and challenges—of the global FX market.

However, while these standards continue to work well for forex trading methods, SWIFT stresses “it would be a mistake for the FX industry to be complacent.”1 In its June 2019 report, The Value of Standards in the FX Market, SWIFT calls on all participants to work together to identify inefficiencies and agree on improvements that increase automation and eliminate obstacles that could hinder global forex trading.2

 

SWIFT Urges Collaboration on Automating Forex Trading Strategy

 

In its recent report, SWIFT says forex traders must increase their rate of automation by adjusting message standards to keep up with evolving technology and regulations. But for salient changes to be made, FX market participants must build momentum by working together. This collaborative process would take into account all participants in the international FX industry.

 

By working closely with forex traders to figure out the obstacles and costly inefficiencies in the forex industry, SWIFT says it will be better able to adapt existing standards to meet new demands.3 These standards will be able to increase automation levels by enabling straight-through processing and removing barriers that can hinder forex trading strategies. SWIFT emphasizes that the goal is not to regulate the FX market through compulsion, but to make sure the benefits of standards are known and understood across the board.4

 

Historically, SWIFT’s collaborative approach has worked. SWIFT’s 2019 Standards Release, for instance, will announce several changes to solve problems submitted by the FX industry.5 This includes addressing a strong customer demand in Asia, among other changes that are intended to reduce errors and raise levels of automated message processing.6 These changes go into effect November 17, 2019, but SWIFT Recommends FX market participants prepare in advance.

 

How Versatile Standards Can Ease Forex Market Challenges

 

Between its complex, diverse nature and the trillions of dollars traded every day7, the FX industry couldn’t operate without automation.8 And even with automation, obstacles that hamper the exchange of information persist. Efficient settlements depend on accurate and prompt confirmation of trade terms between parties, but millions of confirmation messages are exchanged every day. This means discrepancies are inevitable, and the cost of error is high—an error in even one percent of transactions can result in tens of thousands of potential settlement failures every day, says SWIFT.

 

What’s more, many FX market participants still confirm trades by email, fax, and telephone, but these manual processes can be costly. For example, “a large bank in a major market might have as many as 10,000 customers who do not confirm trades automatically. If each of those customers executes just two trades a week, that translates into 20,000 emails, faxes, or telephone calls in a week—in one country” says the report.

 

Despite the existence of standards and automation, the market is volatile and new technology and regulations are constantly arising. Market evolution can leave gaps that create unnecessary costs, delays, and risks that can hinder the success of forex traders.9 This means that even forex traders whose strategies do use automation need to adapt over time. As SWIFT’s report puts it, “automation is a process, not a destination.”

 

What SWIFT’s Call for FX Standards Means for International Businesses

 

Standards, however, can remove barriers to help a business work and grow by fostering efficiency and automation. In order to meet diverse market needs, SWIFT says developing and adapting standards must be a collaborative process. This means that international businesses involved in forex trading must collaborate to identify a common approach to eradicate operational inefficiencies and increase automation in order to benefit the FX industry as a whole.

 

“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,” says Juliette Kennel, Head of Securities and FX Markets at SWIFT.10 “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.”

 

International businesses involved in the FX industry are welcomed to actively participate by commenting on change requests for annual SWIFT Standards Releases and getting involved in the governance of FX standards, among other ways. According to SWIFT’s report, the idea is to adopt “changes which originate from the industry, which are subject to screening by the industry, and which are adopted by a vote of the industry.”

The
Takeaway:

SWIFT has been working to improve efficiency in the highly complex FX industry since the 1980s. In its recent report, The Value of Standards in the FX Market, SWIFT warns against complacency while calling for industry-wide collaboration to continually adopt and update standards. Updated standards inspired by industry needs are expected to facilitate greater efficiency and more effective automation of forex trading strategies—ultimately saving market participants time and money.

Megan Doyle - The Author

The Author

Megan Doyle

Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.

Sources

1. The Value of Standards in the FX Market, SWIFT; https://www.swift.com/news-events/news/the-value-of-standards-in-the-fx-market
2. Ibid.
3. “Swift pushes for greater automation in FX,” Finextra; https://www.finextra.com/pressarticle/78759/swift-pushes-for-greater-automation-in-fx
4. The Value of Standards in the FX Market, SWIFT; https://www.swift.com/news-events/news/the-value-of-standards-in-the-fx-market
5. “Swift pushes for greater automation in FX,” Finextra; https://www.finextra.com/pressarticle/78759/swift-pushes-for-greater-automation-in-fx
6. “2019 changes to message standards will raise rates of automation in the FX industry,” SWIFT; https://www.swift.com/news-events/news/2019-changes-to-message-standards-will-raise-rates-of-automation-in-the-fx-industry
7. “Forex Market Overview,” NASDAQ; https://www.nasdaq.com/forex/education/foreign-exchange-market-overview.aspx
8. The Value of Standards in the FX Market, SWIFT; https://www.swift.com/news-events/news/the-value-of-standards-in-the-fx-market
9. “Swift pushes for greater automation in FX,” Finextra; https://www.finextra.com/pressarticle/78759/swift-pushes-for-greater-automation-in-fx
10. Ibid.

Related Articles

Faster Cross-border SWIFT Payments With Global Payments Innovation Initiative

Slow Adoption of SWIFT’s Bank Payment Obligation for Digital Trade Finance

SWIFT Payments Explained

Existing FX International Payments customers log in here