The foreign exchange market – a decentralized, over-the-counter market – has grown exponentially in the past two decades with daily volume reaching $6.6 trillion in 2019. However, trading foreign exchange currencies is inherently error-prone and complex. With payment details captured manually by buyers and sellers, on top of the fast-changing regulatory environment, fund managers are now in need of an end-to-end solution to assist in the efficient settlement of their transactions.
Forex Settlement
With the option to execute spot trades and forward trades, trading in the foreign exchange market often requires a collaboration between several intermediaries. Thus, a centralized, electronic platform for the creation, authentication and submission of FX wires can be a boon for managers by reducing paper processes, driving improved visibility, productivity and cost efficiency, and lowering operational and compliance risks.
SWIFT MT304 and MT300
SWIFT provides a secure method for the settlement of FX transactions. For instance, an asset manager can instruct its custodian to settle a third-party foreign exchange deal by sending a MT304 SWIFT message whereas details of the new contract can be confirmed using a MT300 SWIFT message. Likewise, if there is an amendment or cancellation of the contract, a MT300 message can be sent directly to counterparties with notification.
Overall, the processing of FX trades requires an exchange of multiple SWIFT or non-SWIFT messages between parties – further underscoring the need for a robust, secure and tailor-made solution that is seamlessly connected to the SWIFT network.
IVP Cash Management Solution’s FX Payment System
The IVP Cash Management Solution FX Payment System is capable of processing multi-currency wires and, more broadly, automating the entire settlement process. Using a fully configurable workflow, the solution easily integrates with third-party applications and creates FX payment wires based on the tickets generated – reducing risk and increasing efficiency.
[1] Troy Segal, “Forex Market: Who Trades Currencies and Why,” Investopedia, October 3, 2020.
