BOJ ready to test new forex trading platform
The Bank of Jamaica (BOJ) says that the implementation of the Foreign Exchange Trading Platform (FXTP) that it has been building was delayed because of the impact and distraction of COVID-19 but that it is now ready to test the system.
Full implementation of the FXTP under the ongoing reform of the foreign exchange market is not expected until early 2021.
However, a pilot of the system will begin on Monday, June 1, involving banking institutions only, but with cambios and large companies as observers. Under the pilot phase, banks will be able to trade US and Jamaican currency pairs in real time.
The BOJ said that for greater transparency, a select list of large corporate clients involved in buying and selling foreign exchange has been provided by the relevant umbrella organisations – the Private Sector Organisation of Jamaica, the Jamaica Manufacturers and Exporters Association, the Small Business Association, the MSME Alliance, and the Jamaica Chamber of Commerce – to be added to the system as observers.
“While they will be unable to take part, these observers will be able to see all daily trades in real time, which will help them make informed decisions when approaching the market to buy or sell foreign exchange,” the BOJ said.
Aside from COVID, the central bank said the delay in the intended implementation of the platform this year was also due to the need to fine-tune the system to accommodate specific internal compliance requirements of deposit-taking institutions, or DTIs.
“These requirements include limits on exactly how much FX they can trade with non-DTIs, and so to facilitate seamless trading when the system is implemented, protocols will be built into the system for each cambio that a DTI may trade with,” the BOJ added.
After the pilot phase, the actual platform, including all authorised foreign exchange traders, will be introduced gradually in three phases.
Phase One, for ‘order market trading’, will see dealers being able to post offers and bids or buy and sell orders on the platform and conduct trades anonymously online.
In the second phase, described as ‘quote market trading’, forex traders will be able to contact each other directly within the trading platform to negotiate and settle orders.
Under Phase Three, ‘external market reporting’, dealers will report their trades with large corporate clients as well as trades in other currencies to the BOJ. At this stage, the central bank will retire its eGate system, which is currently being used for reporting all daily transactions in the FX market.
BOJ said phases one and two should be introduced before the end of 2020 while the final component is scheduled for early 2021.
As for B-FXITT, which is another piece of the central bank’s foreign exchange infrastructure, BOJ Deputy Governor Natalie Haynes said that that system would remain in place because it serves a different function.
B-FXITT is used by the central bank to buy or sell foreign currency in the market under an auction system. As an intervention tool, it is used by the central bank to stabilise the market.
The auctions, said Haynes, are determined by the BOJ’s assessment of market conditions.
“In that regard, the FX trading platform, which is to facilitate inter-dealer trading among licensed FX traders - that is, deposit-taking institutions and cambios – will not affect the regularity of B-FXITT auctions. Notably, B-FXITT auctions will not be conducted on the FX platform,” Haynes said.
As to whether it is envisioned that at some point the platform would allow non-banks and non-cambios to eventually trade foreign currency, Haynes said not at this stage.
“This is in order to promote efficiency and transparency in the FX market. It may be possible in the future to allow for trading by other parties with licensed traders when the market becomes more transparent and liquid,” she said.