Sub-custodian FX timestamping often sub-par, the IA warns

The Investment Association calls for greater timestamping precision from sub-custodians, as inaccuracies jeopardise the accurate analysis of FX trades.  

The Investment Association (IA) has called for reform on FX sub-custodian timestamping, after members have highlighted concerns around the accuracy of the trading timestamps.

When trading, an asset manager will look to receive a timestamp for when the order was received and when it was executed. Given the speed at which FX markets move, these timestamps should ideally be provided on a millisecond basis, the IA said.

In some instances, traders will delegate their FX trading to a custodian, who may have greater expertise in a particular area. Moreover, trading may be further delegated to a sub-custodian for trades that occur in emerging market jurisdictions where that custodian does not have a local desk.

However, members of the IA have reported that on many occasions where a trade has been delegated by their custodian to a sub-custodian, the accuracy of the timestamps is highly unsatisfactory. Some members reported timestamps accurate only up to the nearest minutes, while others have received only the day on which a trade takes place.

This lack of precision makes accurate analysis of the quality of FX trades very difficult, the IA said, which in turn has a negative impact on the ability of asset managers to manage risk for themselves and their clients.

Principle 36 of the FX Global Guide states: “Market participants should keep a timely, consistent, and accurate record of their market activity to facilitate appropriate levels of transparency and auditability and have processes in place designed to prevent unauthorised transactions.” It further states that: “Information should be made available to clients upon request, to provide sufficient transparency regarding their orders and transactions to facilitate informed decisions regarding their market interactions.”

With this in mind, the IA is calling on custodians to continue to implement the recommendations of the guide and also apply pressure to sub-custodian partners to do the same.

A series of best practice recommendation was also set out by the IA, addressing engagement between clients and custodians; transparency of custodians’ approach to trading, sub-custodian appointment, and timestamping in emerging markets; and custodians regularly reviewing and applying commercial pressure to their sub-custodians to ensure, where possible, that data provision is improved.