Media release


10th June, 2004

New FX trading guidelines will limit opportunities for
costly mistakes


 

After a gestation period of nearly 18 months two of Australia's leading financial industry associations have delivered a set of guidelines that they hope will significantly limit the risks of mistakes and mishandling in foreign exchange trades.

 

The Australian Financial Operations Association (AFOA) and the Finance and Treasury Association (FTA) this week released to their members the new guidelines which set out procedures for straight through processing, a process for confirming foreign exchange transactions between banks and their corporate clients.


The AFOA represents approximately 70 institutions including all of Australia's major banks, while the FTA has some 1400 members nationally who are individual financial risk management professionals, predominantly working in Australia and the Asian region.


The new guidelines propose that confirmation of FX trades must be made within two hours of the trade being made by one of three agreed confirmation methods: email, a confirmation matching system such as SFE Austraclear, or internet portal trading systems.


According to AFOA chairman, Kevin O'Sullivan, the new guidelines will significantly improve controls in the risky FX trading environment.

 

"Currently, those entering into a trade don't have the certainty of knowing that they've dealt at a particular rate until they have received confirmation of the trade. By establishing a two-hour limit in which confirmations must be received we're effectively narrowing the opportunity for errors to take place," Mr O'Sullivan said.

 

"And by focussing on these agreed electronic confirmation formats, we can speed up the discovery of mismatches, replace the relatively costly manual handling processes of printing, signing and faxing confirmations, and free up time to better handle problem trades."


In recent years several high-profile FX scandals have cost banks and corporate traders billions of dollars. "We've taken on board lessons from recent fraudulent trading activity such as the case involving Allfirst Bank in the United States which cost the Allied Irish Bank US$691million," said David Michell, technical director and deputy CEO with the FTA.


"We acknowledge that some of our members may still be relying on verbal and fax confirmations, but these new guidelines, if adopted, will offer a greater degree of surety for them and their counter-parties."


The guidelines, which both the FTA and AFOA have recommended their members adopt, represent a step towards the automation of all financial transactions.

 

They include a case study of a corporate moving to straight through processing of confirmations, as well as a series of appendices that show elements of the technical solution, possible confirmation matching service providers, and a diagrammatic description of the old, and the recommended process.


It is the first such development between the Australian banking and corporate sectors.

 

Members interested in viewing the guidelines or furthering their knowledge of the legal issues should go to www.finance-treasury.com or www.afoa.com.au where a fuller description of the various legal issues pertaining to confirmations is to be found. It takes the form of questions with possible answers. The FTA and AFOA sought independent advice from Mallesons Stephen Jaques, with regard the role of confirmations and the legal discussion paper has benefited greatly from their input.


 

For more information contact:


Kevin O'Sullivan
Chairman, Australian Financial Operations Association

02 9312 4600


 

David Michell

Technical Director and Deputy Chief Executive Officer

Finance and Treasury Association

03 9616 0200

http://www.finance-treasury.com/?a1U1D&2WI0&CG8&vk4
FTA