Transparency has been a hot item in the media and by President Obama as it relates to the financial and investment markets. Thousands of pages of new regulations and laws have been passed over the last couple years in an effort to provide more transparency.
We at IMS agree that transparency is critical. However, laws and new regulations are not going to solve the issues of the international FX exchange.
As we touched on in the GAP Exchange section, the retail institutions of FX that most businesses work with, do not provide a full accounting and transparency of the FX conversions they execute on your behalf. Thus, over 100 billion per day of value goes unaccounted for.
The issues that we have to tackle are much more then expected in the world of FX commodities compared to other markets.
False Assumptions is one of the biggest issues. People assume there is some central common market of Exchange. There is not. “Well, what about the Inter-Bank Market Rate,” some will say. Well, there is no Interbank to call and get Cash delivered on those Rates. It should be labeled Inter-Bank Rate Indicator.. THERE IS NO CENTRAL MARKET. ALL MARKETS ARE PRIVATE AND WHOLLY SEPARATE. There are other false assumptions, but that one is the most damaging to transparency.
As stated in the WSJ “The SEC typically doesn't have direct jurisdiction over the foreign-exchange market. And the private agreements between custody banks and their clients appear to give banks wide discretion over how they charge funds for currency transactions.”
Another major issue is Not Trading Your Agenda, but THIERS. As quoted by the WSJ, “In correspondence this year with the Los Angeles County Employees Retirement Association, BNY Mellon said it had adhered to all of its agreements and it "has also consistently made clear that it executes all foreign currency transactions as counter-party, and on a principal basis." A principal basis means the bank doesn't act in a client's interests when pricing trades.
The above quote is in relation to a $200M suit filed by California against BNY.
Even though it is possible to individualize each currency trade, the majority of FX conversions are lumped into many of large financial institutions agenda and what pricing best serves them. Thus transparency of your individual trade is impossible.
The last main issue is Incorrect and misleading Time Stamps. The timing factor is the most difficult of all, even if you have a diligent CFO or treasury watching the pricing against the published interbank rate. As published in the WSJ “The custody banks don’t have to provide transaction-time records, so it’s hard for clients to know exactly when a currency exchange took place or whether they received prevailing prices. “There is no common reporting requirement or time-stamp obligation for FX trades,” said a report by investment firm Russell Investments last year.”
We at IMS have gone thru the above misconceptions and misreporting issues and have the solution. Our Point of Conversion Report gives a 100% accounting of your FX trades and provides you the security of KNOWING exactly what your money is doing and when.
Contact IMS now to start taking Control of your currency exchanges
