• The main advantages of the new system compared to bilateral settlement are improved efficiency and reduced risks in foreign exchange transactions
• The global foreign exchange market trades more than 7.5 trillion dollars a day

BME has presented, at an event held at the Madrid Stock Exchange Palace, its new foreign exchange transaction settlement system in payment versus payment mode (FXS), which recently received approval from the Bank of Spain. This new system is part of its global project to provide secure and innovative solutions to participants in the foreign exchange market (Forex).

In line with this objective, BME has developed a comprehensive set of services that encompasses the entire value chain of foreign exchange operations, from trading to settlement of transactions in this market, which is the largest traded volume globally, with more than 7.5 trillion dollars executed per day. The new FXS settlement system complements these services by improving efficiency and reducing the risks of currency transaction settlement compared to bilateral settlement.

The event featured the participation of Banca March, which announced its adherence to this payment system a week ago, and Bankinter, which is the first liquidity provider of this new system.

In the opening speech of the event, Xavier Aguilá, General Director of BME Clearing, commented that this project arises from the demand of Spanish banking entities, given the challenges posed by the transformation that the foreign exchange markets are experiencing, driven both by technological development and the entry of new participants, as well as regulatory initiatives such as the FX Global Code. In this context, the entities have identified the need for greater automation of processes and solutions to limit the risks associated with bilateral settlement of transactions as the main difficulties in their operations.

Next, José Parga, Head of BME FX, presented the services developed by BME to respond to this demand: a trading platform that includes a technological solution for the digitization of foreign exchange transaction flows in banks and financial entities, facilitating operations in both Spot currency and xRolling FX futures traded on MEFF; and the FXS settlement solution, the payment system operated by BME to eliminate principal risk in the settlement of transactions between these entities.

Precisely on the challenges faced in this operation and the solutions that FXS can provide, the panel developed next, moderated by Paula Fernández, head of FXS at BME, focused. In their interventions, Sergio Jiménez, Head of FX&Stir trading at Bankinter, and Jeroni Alomar, Director of Control and Treasury at Banca March, highlighted the difficulties related to the greater need for digitization and control to mitigate the risks associated with settlement, in a clearly competitive environment with an increasing number of counterparties.

On the other hand, María José García, Head of the Surveillance Unit of the Payment Systems Department at the Bank of Spain, explained the role that Central Banks play in adopting mechanisms that mitigate these risks. In fact, Sergio Jiménez pointed out that the application of these measures is proving to have other beneficial effects on operations, such as increased transparency and competitiveness, which ultimately result in more efficient price creation. Jeroni Alomar also explained how payment versus payment mechanisms, combined with net settlement, contribute to limiting operational risks and facilitate liquidity management by treasury desks.

The last part of the panel focused on exploring the advantages that FXS provides as a payment system under the supervision of the Bank of Spain, in terms of compliance with the PFMI-IOSCO principles for financial market infrastructures, and in relation to the comprehensive management of risks associated with the service. Finally, both participating entities, Bankinter and Banca March, shared their experience in implementing FXS in their operations. Jeroni Alomar, for his part, emphasised the ease of integrating FXS into Banca March’s back-office operations and the advantages it provides in terms of security, liquidity management, and risk elimination. For Sergio Jiménez, the adoption of BME’s solutions allows Bankinter to provide greater scalability to its currency business, increasing efficiency and competitiveness with the support of a neutral entity like BME.

You can find more information about BME FXS on their website.

Source: BME