2019 changes to message standards will raise rates of automation in the FX industry
Find out what’s in store for November’s SWIFT’s Standards Release
- The annual SWIFT Standards Release cycle makes changes to established messages, some of them mandatory, every year.
- In 2019, a number of changes to the MT 300 trading counterparty confirmation messages and MT 304 settlement counterparty confirmation messages affect FX market participants directly.
- The biggest change in the 2019 Standards Release is the creation of a new optional Sequence to facilitate standardised messages for post-trade (like rollovers or early delivery) and address a strong customer demand in Asia.
- The other major change is the removal of Option D, the free format text field used to identify trade and settlement counterparties in the MT 300 and MT 304 confirmation messages, which will reduce errors and repairs and make it possible to raise levels of automated message processing.
- Once Option D is no longer available, FX market counterparties will have the choice of using Option A (where BIC codes or, if necessary, Party Identifiers are used) or Option J (where LEIs and other identifiers can be used).
- FX market participants are advised to use Option A whenever possible.
- Although the changes to the MT 300 and MT 304 messages do not happen until 17 November 2019, early active preparation is recommended.
Standards make businesses work and grow. Foreign exchange (FX) is no exception. As in other markets and industries, standards are already cutting the costs of internal operations in FX, making it easier for FX market participants to deal with more customers and counterparties and reducing the risks of innovation. But standards can only deliver these benefits if they adapt continuously to meet new demands, accommodate novel instruments and resolve inefficiencies. By raising rates of automation and embracing new and changing market practices, the SWIFT 2019 Standards Release (SR 2019) delivers benefits of exactly this kind.
What’s to come in SR 2019?
The SWIFT messages used by the FX industry have evolved continuously. Over the last ten years they have adapted to help market participants to meet new reporting demands from regulators, confirm transactions in exotic FX instruments and eliminate the mistakes that inevitably accompany free text fields. Importantly, all of these changes were proposed and agreed by market participants themselves, as part of the annual new and updated Standards Release process run by SWIFT.
The SR 2019 is no exception to this cycle. It addresses two major items:
- A whole new optional Sequence (‘F’) to support a range of post-trade activities such as early delivery and rollover practices. This is responding to customer needs most centred in the Asian markets. This is a major change in the scope of the MT 300.
- Removal of the free format option D from fields used to identify the trade parties in all MT 300 confirmation messages and the MT 304 confirmation messages used to identify the settlement parties, such as custodian banks and payments market infrastructures. This change will further facilitate the automation of the matching process that enables an FX trade to be confirmed.
What do the changes mean for me?
Once in place, it will save counterparties considerable amounts of time and money repairing erroneous free format data, since both the MT 300 and the MT 304 are high volume messages. The change will be in place from 17 November 2019. Any SWIFT user that continues to use the free format option D field in MT 300 and MT 304 messages after that date will find their messages are rejected by a Negative Acknowledgement (NAK).
The changes affect the trade party fields 82a (Party A), 87a (Party B) and 57a (the receiving agent) in the MT 300 messages and fields 83a (the underlying fund), 82a (the fund manager) and 87a (the executing broker) in the MT 304 messages. They affect settlement party field 57a (the receiving agent) in the MT 300 messages and fields 53a (the delivery agent), 56a (the intermediary), 57a (the receiving agent) and 58a (the beneficiary) in MT 304 messages.
Users can switch to one of two other format options:
- Option A – where the Party Identifier and Bank Identifier Code (BIC) appear – is recommended
- Option J - which is also being enhanced by changes to the clearing, Legal Entity Identifier (LEI) and tax identification codes it incorporates.
What benefit will the changes bring?
In addition to raising the rate of automation, the changes also confer some specific benefits on FX market participants. These include making it easier to settle FX trades between fund managers and executing brokers by including:
- a code which identifies the managers of the underlying fund
- simplifying the processing of trades which do not require settlement instructions, because they are either netted or non-deliverable
- facilitating the identification of fund managers, which do not have BICs, by using a name and an LEI
SR 2019 also includes a number of minor changes to SWIFT Category 3 messages to address particular issues. MT 304 now allows the type of Operation Copied to be specified (codes CNEW, CCAN, CAMN) for new, cancel, amend. Others allow users to avoid defaulting to Hong Kong as the offshore Renminbi centre and making the central bank in Russia the reporting authority.
These minor adaptations are classic instances of why message standards can never stand still. They all first emerged as requests-for-change by market participants at the local level, and were translated into concrete, detailed changes through the well established and consultative standards release cycle managed by SWIFT. It is now up to market participants to translate even the non-mandatory changes into day-to-day reality by adopting them and using them.
Get ahead of the game
The timetable is now set. The cutover date is the weekend of 17-18 November 2019, but the work of adoption can begin immediately. Users can make their migration easier by switching now from Option D to Option A; in fact, the User Handbook already states that, for matching purposes, Option A must be used. There is nothing to stop users updating their static data repositories to identify counterparties with a BIC or a Party Identifier already.
Likewise, users of Option J can start preparing to incorporate the enhancements into their day-to-day operations – by, for example, using codewords for names and addresses instead of free text fields. All changes are currently in the vendor testing stage, but the final User Handbook will be published on 19 July and the FIN Testing and Training environments will follow two days later. It is never too soon to start preparing for the transition.
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