Trade confirmation receipts
Trade confirmation receipts or TCRs ("sluttseddel" in Norwegian) come in as many formats as there are FX banks. A TCR is simply a document confirming the trade, and usually consists of a one-page PDF-file sent via email from the FX bank to the customer. More and more FX banks also support displaying trading history online in their respective internet banking portals, where their customers are able to find previously executed trades and download the corresponding TCR. These online portals also might allow customers to download Excel or CSV files with all the trades they have done in a pre-specified period.
Although the information contained in a TCR is fairly standardized, there are differences as to what type of information certain FX banks are willing to share with their customers. Some FX banks keep information on the TCR to a minimum, whilst others take a more transparent approach and provide their customers with much more trade details.
At minimum, a typical TCR contains information such as the trade date, the currencies exchanged and the respective amounts, the exchange rate and trade reference—an identifier used to store the trade in the provider's system. However, this basic information excludes vital details. For example, “at what point in time during the day was the trade executed?”. Since FX rates can vary quite a lot throughout the day, the exact time of trade is very important if the customer wants to know if the rate they got was good or not.
We can only speculate as to why some FX banks hide this information from TCRs, but we suspect that it relates to the fact that some banks are trying to hide the true cost related to the trade so they are free to price as they so desire.
Just FX Analytics
Well positioned Norwegian corporates use Just FX Analytics to benchmark their FX trades. However, Just can only analyze trades that have correct and complete information on the corresponding TCRs. If the TCRs uploaded to Just FX Analytics don’t have visible timestamps with second-resolution, it is not possible to analyze the trade with confidence. It is also very important that we know what timezone the timestamp was denoted in, as this can vary between FX banks.
In cases where the timestamp and timezone is not visible on the TCR, some of our customers have had success asking their broker for an Excel-sheet containing all trade details. Conversely, some FX banks are still reluctant to give out this information and state that it is impossible to extract. Luckily, our growing customer base has proven that all large banks in Norway do have this information available; some are simply more reluctant to be transparent.
New era in corporate FX
On May 25th 2017, the Bank of International Settlements (BIS) launched the FX Global Code with the goal of increasing transparency in the FX market and encouraging fair conduct for market participants. Although the FX Global Code is just a set of 55 voluntary and non-enforceable principles rather than a regulatory measure imposed by governments, more and more FX banks are adhering to it.
One of the top leading principles of the FX Global Code is related to the confirmation and settlement processes:
“Market participants are expected to put in place robust, efficient, transparent, and risk-mitigating post-trade processes to promote the predictable, smooth and timely settlement of transactions in the FX Market…”.
Since the minimum requirement for being transparent is that banks present the exact time of trade on the TCR, it is apparent that not all Norwegian banks are fully abiding by the new FX Global Code. Yet...
We at Just believe transparency is key, and we advise all our customers to choose their FX banks carefully. If the FX provider is not able or willing to provide sufficient information on their TCRs, the customer should move their FX business elsewhere.
The timestamp is paramount information for any transaction cost analysis, and enables the comparison of trades with simultaneous trades from the interbank market. By comparing our customer's trades, Just can provide vital information back—we break down their trades and unveil the banks' profit margin, introducing a whole new way for corporates to conduct their FX business.
Results of FX cost analysis
Removing the inherent information asymmetry levels the playing field and brings our customers the power of negotiation: “Why are we paying USD 1.400 per million USD traded, when we only pay USD 730 per million at a competing bank?”. In most cases, where FX is traded through an online trading platform, there is really no excuse for applying high margins. Especially when it comes to pure vanilla spot trading, where the customer has no significant credit risk. The margin applied by the banks on these trades should be close to zero. This is not the case, by far, which leads us to the conclusion: banks charge what they can, as long as the customer doesn't pay attention.
So in sum: paying attention matters! Make sure to tell your bank that you are paying attention to the rates they provide you, and ask why they margins applied to your trades are what they are. Vigilance is key to having a successful FX operation, and it all starts with a click of a button.