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T H I S H A S B E E N A P A R T I C U L A R L Y C H A L L E N G I N G Y E A R F O R T H E G L O B A Lfinancial community. Few of us were left untouched by the tremendous loss oflife and destruction caused by the September 11 attacks on the World TradeCenter and the Pentagon. These tragic events did not, however, diminish thepower of the human spirit to overcome disaster. I am particularly proud of thecontributions that the Foreign Exchange Committee made to enable the finan-cial system to remain functional on September 11 and in the days and weeksthat followed. Committee members and affiliates worked tirelessly to ensurethat essential trading and settlement operations continued. The effectiveness oftheir efforts demonstrates the importance of committed individuals and indus-try groups to the smooth functioning of the marketplace, even in difficult times.

The crucial importance of communication gained even greater prominenceas the events of September 11 illustrated the global nature and resilience ofthe foreign exchange market. Throughout the year, the Committee made a pri-ority of improving communication and strengthening relationships with otherindustry groups such as the Singapore Foreign Exchange Market Committee.The Committee also endeavored to support the functioning of the market bypublishing relevant papers and letters and by issuing press releases inresponse to critical market events. All of the Committee’s actions werefocused on providing the foreign exchange community with information andcontributing to its overall development.

S U P P O R T I N G T H E M A R K E T A F T E R S E P T E M B E R 1 1The attack on the World Trade Center destroyed both the front- and back-offices of many financial firms. Much of New York City’s financial district wasevacuated and firms activated contingency sites elsewhere. Immediately fol-lowing the attacks, the Operations Managers Working Group of the ForeignExchange Committee began to conduct conference calls to address issues thatarose from the disaster and affected foreign exchange transactions. The groupmet two to three times daily from September 11 to September 19. During con-ference calls, members were able to provide crucial marketwide status reportsand to identify problems as they developed. In addition, because the reloca-tion of firms and disruption of communications made it difficult for counter-

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Chairman’s Letter

6 FOREIGN EXCHANGE COMMITTEE 2001 ANNUAL REPORT

parties simply to find one another on September 11, within hours of the disas-ter the group helped market participants locate one another by creating acontact list and circulating it by e-mail.

In an early conversation, members of the group considered whetherchanges in the settlement conventions were needed to accommodate settle-ment disruptions, but the majority agreed that trades were settling sufficientlywell and no change was warranted. The conference calls also provided aforum for immediate information sharing and an opportunity for the FederalReserve Bank of New York to engage in dialogue with the marketplace abouttrading and settlement conditions in foreign exchange and money markets.

The group’s efforts proved critical in keeping foreign exchange marketsfunctioning and reestablishing settlement operations. Consequently, the for-eign exchange markets experienced fewer disruptions after the attacks thanother markets. The Foreign Exchange Committee recognizes that having theOperations Managers Working Group already in place enabled the Committeeto respond quickly and to mobilize efforts to identify essential issues andresources. After witnessing the effectiveness of the Operations ManagersWorking Group, many other industry participants have established similarstanding groups to aid the marketplace in any future disruptions.

Nonetheless, the September 11 attacks highlighted a number of risks spe-cific to the foreign exchange market that the Committee wishes to emphasizeas market participants examine their preparedness for market events in thefuture. Toward that end, the Committee issued a paper in November 2001,Contingency Planning: Issues and Recommendations, summarizing specificevents in the foreign exchange market and offering recommendations to helpavert or minimize any such future event.

The Committee also reassessed its own preparedness for emergencies andinstituted several changes. The Committee’s public web site was enhanced toprovide more tools for information sharing in the event of an emergency. Inaddition, meetings with other industry groups, such as the Singapore ForeignExchange Market Committee and the Canadian Foreign Exchange Committee,were initiated to discuss ways to coordinate contingency planning efforts andto foster increased communication between secretariats in the future. TheCommittee is continuing those initiatives.

M A R K E T V O L A T I L I T YBefore September 11, the Committee was already at work addressing issuesof market volatility and disruptions. Throughout the years, market participantshave learned that prudent market practices and optimal communicationbecome particularly necessary in times of uncertainty. The Committee has con-sistently aimed to alleviate concerns about market volatility and disruption byproviding a forum for sharing information and, in certain instances, recom-mending best practices.

In 2000, a group of central banks sponsored a forum to discuss marketdisruptions specifically. This meeting of the Financial Stability Forum WorkingGroup of Highly Leveraged Institutions resulted in a list of key measures titledTrading Principles. Although the Guidelines for Trading Activities in ForeignExchange promote many of these principles, the Guidelines were amended in2001 to include Addendum C, which highlights practices that take on particu-lar importance during periods of significant market volatility.

Nonetheless, the Committee thinks that good planning and clear internalguidelines are equally important in more ordinary times and can help marketparticipants position themselves to react more effectively to market events.With this in mind, the Committee issued Supplementary Guidance for MarketDisruptions as an aid to participants in preparing for such circumstances.

M O N I T O R I N G E - C O M M E R C E I S S U E SThe Committee understands the important role played by e-commerce in theforeign exchange industry. Surveys such as the Bank for InternationalSettlements’ Triennial Survey of Foreign Exchange indicate growing interestamong market participants in using web portals for transacting trades. TheCommittee continues to monitor the effect of e-commerce on price discovery,transparency, and liquidity in the marketplace.

In 2001, several multidealer portals began operations that allowed cus-tomers to use a single web interface for trading with several counterparties.To better understand these developments, the Committee established a sub-group to study them. The group as a whole felt that it was too early in theevolution of e-commerce to warrant any substantial change in the structure orpractice of foreign exchange, but will continue to evaluate trends going for-ward. However, with the cooperation of the Operations Managers WorkingGroup, the Committee offered special guidance on the use of electronic vali-dation, a feature offered by many electronic trading platforms. The document,Supplementary Guidance on Electronic Validations and ConfirmationMessaging, outlines some of the key risks of replacing trade confirmation withelectronic validation.

R E D U C I N G S E T T L E M E N T R I S KThe Committee continues to make reducing settlement risk a priority. In 2001,the Committee worked on two initiatives that aim to bolster the certainty thatforeign exchange trades will be settled efficiently and correctly. ContinuousLinked Settlements (CLS) Bank, which, as its name implies, will provide contin-uous linked settlements for its customers, is scheduled to begin operation inthe fall of 2002. At the Committee’s May meeting, representatives from CLSBank updated the attendees on the effort to establish a single multicurrencysettlement service that will consolidate the foreign exchange settlement activ-ities of large foreign exchange providers. CLS representatives also reported oncontinuing efforts to minimize liquidity risk by the introduction of “inside-outside swaps,” a function that will allow participants to settle one leg of a

Chairman’s Letter 7

foreign exchange swap inside CLS and the other leg outside CLS, minimizingthe variance in daily balances within the CLS system.

The Operations Managers Working Group and the Financial MarketsLawyers Group (FMLG) continue to consult with CLS Bank on several issues ofmarket practice recommended by CLS. Both groups continue to participate inperiodic meetings with the CLS User Group—a U.S.-based advisory group cre-ated to consider the establishment of CLS. In April, the Committee issued aletter to the CLS User Group expressing support for a proposed recommenda-tion that counterparties may choose, on a bilateral basis, to eliminate tradeconfirmations in lieu of a trade match in the CLS system.

The Committee also continued to collaborate with SWIFT in an ongoingeffort to simplify trading procedures and limit settlement error and confusion.Together with the Singapore Foreign Exchange Market Committee, theCommittee wrote a letter to SWIFT proposing stricter guidelines for trade docu-mentation. A second letter to SWIFT communicated the Committee’s supportfor proposed changes in the definitions for certain SWIFT confirmation fields.

E S T A B L I S H M E N T O F T H E C H I E F D E A L E R S W O R K I N G G R O U PAs trade issues in foreign exchange have become increasingly complex, theCommittee thought that it would be prudent to revive the Chief Dealers WorkingGroup. Committee members nominated chief dealers to participate in the Group.Among its purposes will be to advise the Committee on emerging trade issuesand to address specific concerns and questions raised by the Committee.

In the Working Group’s first year of revival, it discussed a range of issues,including the impact of electronic dealing in the customer market, trade prac-tices for emerging market currencies, and current trends in trade disputes.Concerning the latter, the Group recognized the need for improved communi-cation between counterparties by clarifying standard terminology for stop-lossorders. In consultation with the FMLG and the Committee, the Group com-posed a new section on “Stop-Loss Order Definitions” to be added to theGuidelines for Foreign Exchange Trading Activities.

R E A C T I N G T O T R A D I N G D I S R U P T I O N SThe Committee monitored disruptions in the trading and settlement of theIndonesian rupiah, Taiwan dollar, and Argentine peso. In February, BankIndonesia, the central bank of Indonesia, announced certain restrictions withregard to foreign exchange transactions involving the rupiah. The SingaporeForeign Exchange Market Committee coordinated with the Foreign ExchangeCommittee to seek clarification from Bank Indonesia on the scope of theserestrictions to mitigate uncertainty in the marketplace. Subsequently, bothgroups advised counterparties affected by the restrictions to contact oneanother in order to discuss the treatment of rupiah trade positions.

In September, the Singapore Committee issued a statement regarding thetreatment of fixing rates and settlement dates for Taiwan dollar nondeliver-able forwards (NDFs) after questions arose regarding fixing rates.


Subsequently, the Foreign Exchange Committee endorsed the SingaporeCommittee’s recommendation regarding Taiwan dollar NDFs.

In July, the Committee, along with its co-sponsors the Emerging MarketsTraders Association (EMTA) and the International Swaps and DerivativesAssociation (ISDA), included new documentation for Argentine peso NDFs inAnnex A of the 1998 Foreign Exchange and Currency Option Definitions. Thatdocument supplements the Committee’s master agreement templates for NDFtrades. The new documentation introduces settlement procedures in the eventof an unexpected market holiday.

On December 21, 2001, officials in Argentina announced that local finan-cial markets would be closed. The announcement followed months of mount-ing pressure on Argentina’s bank and foreign exchange reserves. Argentinebanks remained closed until January 11, 2002. After the banks reopened,the peso-dollar convertibility regime was replaced by a partial floating rateregime. Throughout this period, market participants looked to the Committeeand other industry groups, including EMTA, for guidance on the trade and set-tlement of Argentine peso NDFs.

The Committee collaborated with EMTA on several other initiatives in2001. Changes in currency spot rate definitions for the Korean won culmi-nated in additional updates to Annex A of the 1998 Foreign Exchange andCurrency Option Definitions. The Committee recognizes that there is morework to be done to enhance NDF documentation and market certainty fortrading in emerging market instruments and will continue to support EMTA’swork to supplement existing standard trade documentation.

L O O K I N G A H E A D : P L A N S F O R 2 0 0 2Although the Committee made great strides in 2001 toward helping marketparticipants prepare and respond to market events, more remains to be done.In 2002, the Committee will concentrate on a number of projects, including:

● Updating operational guidance to incorporate market-related innovationsover the past five years,

● Monitoring the activities of CLS Bank,

● Collaborating with the Securities Industry Association (SIA) to examine cross-border implications of proposed efforts to shorten securities settlement fromthree days to one day,

● Evaluating the developments of electronic dealing with the assistance of theChief Dealers Working Group,

● Supporting the efforts of EMTA to improve the documentation of NDFs, and

● Examining changes in risk management structures for foreign exchange markets.

Chairman’s Letter 9

In my first year as Chairman of the Foreign Exchange Committee, I amgratified to report the progress made by the Committee in its support of themarketplace. Thanks to the dedication and expertise of Committee membersand affiliates, the foreign exchange community stands better prepared toweather both systemic changes to the industry as well as future marketevents. Many of this year’s achievements are discussed in greater detail inlater sections of this report, and I encourage readers with particular intereststo find them there for their convenience.

I look forward to the continuation of the Committee’s efforts to encouragethe foreign exchange marketplace to strive for the highest standards ofintegrity and sound business practices.

David PuthChairman of the Foreign Exchange Committee


T H E F I N A N C I A L M A R K E T S L A W Y E R S G R O U P ( F M L G ) C O O R D I N A T E Slegal projects with the Foreign Exchange Committee, and provides guidanceon legal matters. The FMLG is sponsored by the Federal Reserve Bank of NewYork and includes senior in-house legal representatives from commercial andinvestment banks active in the foreign exchange market. A senior member ofthe Federal Reserve Bank of New York’s legal staff chairs the group.

The FMLG supports the Committee by:

● Reviewing new documentation and publications prior to circulation,

● Briefing the membership on pressing legal issues,

● Advising the Committee on actions, including lobbying efforts,

● Emphasizing the need for consistent industry documentation related toforeign exchange transactions and collaborating with other industry groupson documentation issues, and

● Promoting a greater understanding of the legal environment surroundingforeign exchange trading.

F M L G A C T I V I T I E S I N 2 0 0 1After the terrorist attacks of September 11, much of the group’s focus was onassessing the strength of market contingency procedures and developing newprocedures to improve market functioning during crises. Improved communica-tions among market participants and various industry groups was seen as thesingle most important area to address to keep markets functioning. The FMLGworked with the Operations Managers Working Group to implement proceduresthat would help market participants maximize contact during times of extraordi-nary market stress. The FMLG also provided assistance in finalizing the ForeignExchange Committee’s Supplementary Guidance for Market Disruptions.

In addition, throughout the year the FMLG worked on a wide variety ofprojects in collaboration with the Committee. Early in the year, the group metwith representatives of the European Financial Markets Lawyers Group, a legal

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Legal Initiatives


industry association affiliated withthe European Central Bank, toprovide the basis for further col-laboration and information shar-ing. By the end of the year, thegroup was monitoring the marketsituation in Argentina and assess-ing the impact of events there onnondeliverable forwards (NDF)documentation. Some of the mostsignificant work of the FMLG isreviewed below:

P o s t - 9 / 1 1 C o n t i n g e n c yP l a n n i n g :

The FMLG, along with theCommittee and the OperationsManagers Working Group con-tributed to an assessment of con-tingency arrangements and com-munication facilities in light of the9/11 terrorist attacks. The FMLGhelped draft the Committee’sSupplementary Guidance forMarket Disruptions. This guidanceaddressed how firms should pre-pare themselves for significantmarket-disruptive events such asterrorist attacks and suddenchanges in law, regulations, ortrading conditions.

H a g u e C o n v e n t i o n o n P r i v a t eI n t e r n a t i o n a l L a w :

Representatives from the FMLGcontributed to efforts to create alegal framework that would providemarket participants with more cer-tainty regarding the law governingcollateral accounts. Representativesfrom a number of nations have par-ticipated in this effort, and it isexpected that a final document willbe produced in late 2002. TheFMLG intends to participate in thateffort.

C o n t i n u o u s L i n k e d S e t t l e m e n t( C L S ) B a n k :

The FMLG subcommittee on CLSBank continued to monitor theimpact that settlement throughCLS Bank would have on the for-eign exchange market and toidentify issues for further study.CLS Bank plans to become opera-tional during calendar year 2002,and the FMLG will continue tomonitor its development duringthe final stages before implemen-tation.

B e a r S t e a r n s v . K w i a t k o w s k i :The FMLG participated in thepreparation of the amicus brieffiled by the Committee, along withthe Bond Market Association, andthe Futures Industry Association,in the Kwiatkowski case. Theappeal in this case seeks to over-turn a ruling that could imposeduties on market intermediaries,including brokers and dealers, thatexceed those defined by contract.

O t h e r i n i t i a t i v e s :● The FMLG commented on the

draft UNICITRAL Conventionon Assignment of Receivables.The FMLG specificallyaddressed the treatment ofcertain kinds of financial con-tracts under the draftConvention.

● The FMLG participated, alongwith the Emerging MarketsTraders Association and theInternational Swaps andDerivatives Association (ISDA),in developing the documenta-tion for a pricing mechanism forArgentine peso NDFs. The FMLG

plans to assess the documenta-tion on NDFs going forward inlight of the lessons learnedfrom the Argentine situation.

● The FMLG monitors importantlegislative and regulatorychanges that could affect theforeign exchange market.During 2001, the group fol-lowed the implementation ofthe regulations of theCommodity Futures TradingModernization Act of 2000and the progress of the finan-cial contract netting provisionsof bankruptcy reform legisla-tion in particular. During 2002,the group will continue tomonitor regulatory develop-ments concerning derivativesand the implementation of reg-ulations under the U.S. PatriotAct.

● The FMLG commented on theFinancial Law Panel’s (FLP) ini-tiative on legal risk. The FMLGprovided the FLP with a num-ber of criteria that could beused to properly define legalrisk for financial institutions.

● The FMLG continued to provideits membership with up-to-date netting opinions for itspublished documentation inkey jurisdictions.

T H E C O M M I T T E E H A S A L W AY S R E C O G N I Z E D T H E I M P O R T A N C E O Fworking with other industry bodies to foster greater communication and pro-mote smooth functioning of financial markets. In the aftermath of September 11,collective problem-solving skills became essential when the industry relied onlines of communication established through years of collaboration to informmarket participants about global trading and settlement conditions.Subsequently, the Committee has emphasized the need to maintain goodworking relationships with other industry groups at all times, and particularlyduring times of market stress.

C O O P E R A T I O N A F T E R S E P T E M B E R 1 1In the days immediately following the attack on the World Trade Center, theCommittee participated in daily conversations with industry groups such asthe Canadian Foreign Exchange Committee and the Singapore ForeignExchange Market Committee. The groups exchanged updates of trading andsettlement conditions in New York City and other market centers. They alsoconsulted one another on best practices. These conversations were critical inproviding marketwide status reports and identifying emerging problems. Whentelephone lines in New York City were impaired, the Canadian ForeignExchange Market Committee served as a communication hub, relaying infor-mation to market participants in other regions. In addition, the Committee andthe Singapore Foreign Exchange Market Committee jointly conferred on mar-ket practices. The two committees agreed that market conditions generallyremained orderly and prevailing trading and settlement practices were appro-priate.

As the Committee reevaluated the ways to best support the market duringuncertain times, it recognized the importance of working with other industrygroups in creating its own contingency plans. The Committee has collaboratedwith other groups to establish multiple lines of communication betweensecretariats as safeguards and has emphasized the need to maintain regularcontact with one another in ordinary times and even more frequent contactduring times of market stress.

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CommitteeRelationships withOther Organizations


J O I N T E F F O R T S D A I L YThe Committee collaborates witha variety of industry associationsand advisory groups on a day-to-day basis, for example workingclosely with the Financial MarketsLawyers Group (FMLG) on legalissues. The FMLG, in turn, oftencoordinates work on its projectswith other organizations, such asthe Bond Market Association(BMA), the British Bankers’Association (BBA), theInternational Swaps andDerivatives Association (ISDA),and the European FinancialMarkets Lawyers Group (EFMLG).

The Foreign ExchangeCommittee also interacts with theFinancial Markets Association-USA, whose president serves as anobserver on the Committee. Inaddition, the Committee has con-tinued its involvement with CLSBank as it evolves.

S U P P O R T I N G E M T A ’ S E F F O R T SIn 1998, the Committee embarkedon a joint initiative with theInternational Swaps andDerivatives Association (ISDA) andthe Emerging Markets TradersAssociation (EMTA) to standardizetrading documentation for nonde-liverable forwards (NDF) and relat-ed emerging market transactions.In recent years, EMTA has spear-headed efforts to improve NDFdocumentation. In 2001, EMTAexplored alternatives for settlingNDF contracts when local marketsclose unexpectedly. In July, EMTAproposed new NDF documentationfor Argentine peso NDFs, introduc-ing a means of settlement in theevent of a market closure.

The Committee endorsed theproposed changes, and togetherwith ISDA and EMTA, integratedchanges to Annex A of the 1998Foreign Exchange and CurrencyOption Definitions, a document thatsupplements the Committee’s mas-ter agreements. (This document isavailable on the Committee’s publicweb site at <http://www.newyork-fed.org/fxc>). The new documenta-tion was particularly timely giventhat Argentine markets closedunexpectedly on December 21 for atwenty-day period.

The Committee also collaborat-ed with EMTA on several otherinitiatives in 2001. Changes incurrency spot rate definitions forthe Korean won culminated inadditional updates to Annex A ofthe 1998 Foreign Exchange andCurrency Option Definitions. TheCommittee will continue to sup-port EMTA’s work to furtherenhance NDF documentation andmarket certainty concerning trad-ing in emerging market instru-ments.

O F F E R I N G F O R E I G N E X C H A N G EE X P E R T I S E T O T H E S I AThe Securities Industry Association(SIA) continues to spearheadefforts to shorten U.S. securitiessettlement from three days to oneday. In 2001, the SIA established aForeign Exchange Subcommitteeto examine the cross-border impli-cations of T+1 settlement. The SIAasked the Committee to offer aforeign exchange perspective onthe SIA’s work. Committee mem-bers, as well as members of theOperations Managers WorkingGroup, participated in the SIA’sForeign Exchange Subcommittee.

The subcommittee will publish awhite paper in 2002 that exam-ines ways to enhance the automa-tion and efficiency of cross-bordersecurities trade.

Given that most foreignexchange spot transactions settlein two days, investors basedabroad would be challenged tofund U.S. securities trades withina shortened settlement window.The subcommittee is researchingpossible funding alternatives andmeans of encouraging straight-through-processing (STP) to facili-tate faster and more efficienttrade and settlement of foreignexchange. In its work, the sub-committee has solicited feedbackfrom other industry groups,including the Tokyo ForeignExchange Market Committee andthe Hong Kong Foreign Exchangeand Money Market PracticesCommittee.

C O O R D I N A T I N G W I T H T H ES I N G A P O R E F O R E I G NE X C H A N G E M A R K E T C O M M I T T E EThe Foreign Exchange Committeevalues its close and ongoing rela-tionship with the Singapore ForeignExchange Market Committee. Bothgroups share common objectives ofimproving market efficiencies,reducing global settlement risk,providing guidance to the foreignexchange marketplace, and dissem-inating information about marketpractices and issues.

The Singapore Committee isuniquely able to provide keyinformation on Asian financialdevelopments given the proximityof Singapore to other financialmarket centers such as Indonesiaand Malaysia. In 2001, the

Foreign Exchange Committee ref-erenced guidance by theSingapore Committee for tradingthe Indonesian rupiah and Taiwandollar.

In February, Bank Indonesiaannounced certain restrictionswith regard to foreign exchangetransactions involving the rupiah.The Singapore Committee coordi-nated with the Foreign ExchangeCommittee to seek clarificationfrom Bank Indonesia on the scopeof these restrictions to mitigateuncertainty in the marketplace.Subsequently, both groups advisedcounterparties affected by therestrictions to contact one anotherto determine jointly whether itwas appropriate to terminateaffected trades.

In September, the SingaporeCommittee issued a statementregarding the treatment of settle-ment dates for Taiwan dollar NDFsafter questions arose regardingfixing rates. The Committee subse-quently endorsed the SingaporeCommittee’s recommendationregarding Taiwan dollar NDFs.

In most years, the two commit-tees conduct a joint meeting inNovember to discuss issues ofmutual interest. However, giventravel restrictions in the fall of2001, the meeting was postponeduntil November 2002. In place ofthe joint meeting, a conference callwas held between the chairs of thetwo committees. The discussionincluded enhanced preparednessfor contingency events, regional

model codes, the upcoming start ofCLS Bank, and potential issues aris-ing from the proposed T+1 settle-ment of U.S. securities.

The Committee also routinelyexchanges minutes and agendaswith the Canadian ForeignExchange Committee, the ForeignExchange Joint StandingCommittee, the European CentralBank Foreign Exchange MarketContact Group, the Hong KongForeign Exchange and MoneyMarket Practices Committee, andthe Tokyo Foreign ExchangeMarket Practices Committee.

Committee Relationships with Other Organizations 15

A C O R E F U N C T I O N O F T H E F O R E I G N E X C H A N G E C O M M I T T E E I S T O A D V I S Eits sponsor, the Federal Reserve Bank of New York, on issues related to theforeign exchange market. Committee meetings provide a forum for membersto identify changing conditions in the marketplace and highlight industrydevelopments that warrant attention. In these discussions, representativesfrom various types of institutions have an opportunity to voice their assess-ment of recent market developments and trading conditions. These discussionscover a broad range of topics, including currency trends, trading practices,market structure, operations, and risk management.

Throughout 2001, much of the discussion on market developments con-cerned the outlook for major global currencies, including the U.S. dollar, theJapanese yen and the euro. Many of the discussions centered on volume andvolatility trends before and after the events of September 11. Also, membersdiscussed changing conditions in several emerging market currencies, includ-ing the Indonesian rupiah, the Turkish lira, and the Argentine peso.

In addition to commenting on market developments, many discussionshighlighted industry developments and issues that may warrant the attentionof the Committee.

● Electronic trading platforms and the potential impact of electronic dealing oncurrent best practices,

● CLS Bank and best practices associated with processing trades through it,

● Proposed T+1 settlement for U.S. securities and its potential impact on foreign exchange markets,

● Possible measures to minimize confusion and miscommunication amongmarket participants regarding stop-loss orders,

● Ways to improve communication between market participants during marketdisruptions, and

● Lessons learned from the events of September 11 for improving contingencyplanning.

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Advisory Roleof the Commitee

I N 2 0 0 1 , T H E C O M M I T T E E F O C U S E D I T S A T T E N T I O N O N E N H A N C I N Gthe ability of the marketplace to operate safely and responsibly in difficulttimes. After examining historical market disruptions, the Committee recog-nized the need to offer additional recommendations for sound planning andpractices during market disturbances and periods of high volatility. Many ofthese recommendations, which are reprinted in this annual report, were highlyuseful on September 11 and afterwards. In addition, the Committee will con-tinue to work on several long-term issues.

U P D A T I N G O P E R A T I O N A L G U I D A N C EAs the foreign exchange industry evolves, the Committee acknowledges theimportance of keeping its guidance current and applicable. Consequently, theOperations Managers Working Group, in association with the Committee, willupdate the Committee’s guidance on operational practices, Management ofOperational Risks in Foreign Exchange, first published in 1996. Many industrydevelopments, such as the introduction of electronic dealing and prime broker-age, will be incorporated in the revision.

C L S B A N KAs the start-up of CLS Bank approaches, the Committee will continue to focuson specialized issues involving the set-up of CLS and its integration into themarketplace.1 In 2002, the Committee will invite CLS to update the Committeeon its structure and the progress of testing. In addition, the Committee’sOperations Managers Working Group will continue its interaction with CLSBank’s operations-related policy group—the North American User Group—tomaintain a high level of expertise in continuous linked settlements.

E - C O M M E R C EThe Committee understands the important role e-commerce plays in the growthof the foreign exchange industry. With this in mind, the Committee will workwith the Chief Dealers Working Group to monitor the development of electronicdealing in the customer-to-dealer arena. In addition, the Committee intends tooffer a public forum on electronic dealing aimed at educating market participants

19

Report of Worksin Progress


on the functions of electronic deal-ing and resulting changes in theindustry.

N O N D E L I V E R A B L E F O R W A R D SThe Committee will continue tosupport the efforts of the EMTA toimprove the documentation ofnondeliverable forwards. In partic-ular, the Committee will continueto coordinate with EMTA on itseffort to generate alternatives for

settling nondeliverable forwardscontracts when local marketsclose unexpectedly.

“ T + 1 ”The Committee, along with repre-sentatives from the OperationsManagers Working Group, willcontinue to work with theSecurities Industry Association(SIA) to offer a foreign exchangeperspective on the SIA’s effort to

shorten securities settlement fromthree days to one day. The groupwill examine the means by whichmarket participants can enhancethe automation and efficiency ofcross-border securities trade. TheCommittee will work with otherindustry groups, including theTokyo Foreign Exchange MarketCommittee, the Hong KongForeign Exchange, and the MoneyMarket Practices Committee onthese efforts.

1Following a number of delays in technology development, CLS Bank will begin testing in the spring of 2002 and is projected to begin operation in the fall of 2002.

MembershipSubcommittee Report

T H E M E M B E R S H I P S U B C O M M I T T E E , C O M P O S E D O F F O U R S E N I O Rmembers of the Foreign Exchange Committee and chaired by a representativefrom the Federal Reserve Bank of New York, oversees the administration ofthe Committee and assigns duties to its members.

Although the process of choosing members continues throughout the year,most membership deliberations and decisions occur at the year’s end. Eachfall the Subcommittee reviews the composition of the Committee, taking intoaccount those members leaving and those wishing to join, and strives toensure that the membership reflects the diverse interests of the financialcommunity.

Prospective members are generally representatives of an institution with aleading market presence, are respected individuals within the financialcommunity, and are capable of speaking on behalf of their institutions.Members are expected to be active in the Committee’s activities, to attend allmeetings, and to participate in projects or subcommittees when needed. Seethe Membership Lists section of this report for complete membershipinformation for 2001 and 2002.

The Subcommittee also orients new members to the activities of theCommittee, chooses administrative leaders for various working groups, andmakes administrative changes to the operating structure of the Committee ifnecessary.

Early in 2001, the Subcommittee revived the Chief Dealers Working Groupin response to the growing need to address trading issues in the industry.Committee members may nominate representatives to participate in theWorking Group. The objective of the Group is twofold: to bring issuesconcerning the trade and operation of the foreign exchange market to theCommittee’s attention, and to serve as an advisory body to the Committee onbest practices, guidelines, market education, and projects to foster riskmanagement in the marketplace.

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Meetingsof the Committee

T H E C O M M I T T E E T Y P I C A L L Y C O N V E N E S E I G H T T I M E S E A C H Y E A R .Meetings are routinely held each month except April, July, and August. Eachyear, the Committee conducts six afternoon meetings—followed by a dinner—hosted by various members. In addition, two working luncheons are held eachyear at the Federal Reserve Bank of New York. Typically, the November meet-ing is a joint session with the Singapore Foreign Exchange Market Committee,hosted alternately in New York and Singapore.

In 2001, the events of September 11 led to several schedule changes for theCommittee. Owing to constraints on international and domestic travel, themeeting scheduled for September 13 was replaced by a number of phoneconferences. Additionally, the November 8 joint session with the SingaporeForeign Exchange Market Committee was postponed until November 14, 2002.

For 2002, eight meetings are scheduled, including a November 14 jointsession to take place in Singapore. Notably, the meeting usually scheduled forMarch will take place on April 11 to avoid scheduling conflicts.

2 0 0 1 M E E T I N G S 2 0 0 2 M E E T I N G S

January 11 January 10

February 8 February 7

March 8 April 11

May 3 May 2

June 7 June 6

September 13 September 12

October 9 October 10

November 8 November 14

25

CommitteeAssignments,2001 and 20022 0 0 1

C O M M I T T E E C H A I R M A NDavid Puth

L I A I S O N S F O R T H E W O R K I N GG R O U P S 1

O p e r a t i o n s M a n a g e r sPeter MesrobianRobert White

C h i e f D e a l e r sJames KempSue Storey

M E M B E R S H I P S U B C O M M I T T E EDino Kos (Chairman)Peter BartkoMark SnyderMichael Williams

2 0 0 2

C O M M I T T E E C H A I R M A NDavid Puth

L I A I S O N S F O R T H E W O R K I N GG R O U P S 1

O p e r a t i o n s M a n a g e r sRick RuaRobert White

C h i e f D e a l e r sJames KempSue Storey

M E M B E R S H I P S U B C O M M I T T E EDino Kos (Chairman)Mark SnyderMichael WilliamsJamie Thorsen

1A working group handles special projectsand functions in lieu of a subcommitteebecause this structure facilitates a more flex-ible agenda for addressing specific issues.The Committee may also appoint membersas liaisons to working groups. These mem-bers attend working group meetings, articu-late the Committee’s directives, and promotecommunication between the working groupand the Committee.

29

DefiningStop-Loss Orders

31

DefiningStop-Loss Orders

31

She following definitions have been added tothe Guidelines for Foreign Exchange TradingActivities in the trading section:

Stop-loss orders typically fall into four classes,although some dealers may offer products thatvary in their structure and complexity. Someclasses are more commonly used than others anddealers do not typically offer all classes of stop-loss orders.

To varying degrees, each type of stop-loss orderbalances protection against the risk of “slippage”(the difference between the order level and theactual trade price) and the expense of an early exitfrom the trade position. While slippage is afunction of liquidity at different price levels, it maybe magnified or mitigated depending on the typeof stop-loss order used.

All of these definitions apply to normal marketamounts under normal market conditions. Asalways, counterparties should ensure that theyhave an independent understanding of theparameters of normal market conditions for eachcurrency market and can effectively recognize risksduring abnormal market conditions.

B I D / O F F E R S T O P

The order is executed when the market bid (offer)price reaches the level indicated by the bid (offer)stop order. This stop-loss order becomes an “atbest” order (executed at the best price available),which may result in significant slippage in volatilemarket conditions.

T

E x a m p l e :B u y 1 0 m i o E u r a t . 9 0 x x s / l B I D

When the euro bid price is at .90xx, the customer’sorder will be filled at the next offer price. In thisexample, the order may be filled at a much higherprice than the original order level, depending onthe market liquidity at the time of the trade.

A L L T A K E N / G I V E N - N E X T S T O P

The order is executed when the market is no longeroffered (in the case of a buy stop) or bid (in thecase of a sell stop) at the level indicated by theorder. While this stop-loss order becomes an “atbest” order, the slippage may be less than abid/offer stop under normal liquidity conditions.

E x a m p l e :B u y 1 0 m i o E u r a t . 9 0 x x s / l A l l t a k e n N e x t

When the euro trades through all remaining .90xxoffers, the customer’s order will be filled at thenext available offer. It is not necessary for themarket to be bid at .90xx.

O N E - T O U C H S T O P

The order is executed if the order level trades in themarket. It is only necessary for the level to tradeonce for the stop loss to be executed. This type ofstop-loss order may provide additional protectionagainst slippage. However, it typically does notprotect against the risk that the order may beexecuted even if the market price does not tradethrough the order level.

E x a m p l e :B u y 1 0 m i o E u r a t . 9 0 x x s / l O n e - To u c h

If the euro trades at .90xx, the customer’s orderwill be filled at the next offer, including anyremaining .90xx offers. In this example, the orderfill may be closer to the order level than a bid/offerstop or an alltaken/given stop order.

A T - P R I C E S T O P

The order is typically a one-touch stop in which thedealer will guarantee, under normal marketconditions, that the order fill will not exceed thelevel of the order. The customer typically faces therisk that the order may be executed even if themarket price does not trade through the orderlevel. It should be noted, however, that at-pricestops are not typically offered by all dealers, giventheir implied guarantee.

E x a m p l e :B u y 1 0 m i o E u r o a t . 9 0 x x s / l A t - P r i c e

If the euro trades at .90xx, the dealer will buy 10million euro. The dealer will sell 10 million euros tothe client at .90xx regardless of where the dealercovers the position in the market. In this case, therisk of slippage is borne by the executing dealer,given that the trade price may exceed the orderlevel.


The Guidelines for Foreign Exchange TradingActivities have been amended to include thefollowing addendum:

This addendum offers supplemental guidance tomarket participants in order to promote soundbusiness and fair dealing practices during periodsof significant market volatility. The Guidelines andother work of the Committee promote suchpractices in all trading conditions, although certainpractices can be particularly relevant, and take onincreased importance, during periods of significantmarket volatility. The following guidance highlightsthese provisions and also finds support in theTrading Principles drafted by a group of leadingforeign exchange intermediaries in response to arecommendation made by the Financial StabilityForum Working Group of Highly LeveragedInstitutions published in April 2000.

A D D E N D U M C

E f f e c t i v e R i s k M a n a g e m e n tThe Committee recognizes that, as part of effectiverisk management, all trading parties need toheighten their awareness of and sensitivity tomarket risk and credit management issues duringperiods of significant market volatility. When anindividual currency is experiencing high volatility,intermediaries should use particular care whenthey extend credit to counterparties in suchmarkets. (For further information on best practices

T35

SupplementaryGuidance

During Periods of Significant Market Volatility

for effective risk management, refer to the RiskManagement section of the Guidelines.)

D e a l i n g s w i t h M a r k e t Pa r t i c i p a n t sGiven the increased potential for confusion anddisputes in volatile markets, it is essential thatmarket participants pay close attention to thegeneral expectation (applicable at all times) thatthey act honestly and in good faith whenmarketing, entering into, executing, andadministering trade orders. Market participantsshould always act in a manner that promotespublic confidence in the wholesale financialmarkets.

Counterparties should satisfy themselves thatthey have the capability (internally or throughindependent professional advice) to understandthe risks of trading at volatile times and to makeindependent trading decisions. A salesperson at anintermediary has the right, but not the obligation,to convey economic or market information, tradingparameters, the institution’s views, and personalviews, as well as to discuss with the counterpartymarket conditions and any potentially applicablerestrictions relating to transactions. Thecounterparty should understand that suchcommunications will not constitute investmentadvice and therefore should not be relied upon,unless that service is specifically contracted for orstipulated in writing. Intermediaries should remainaware that, unless otherwise agreed, anintermediary is not obligated to enter into atransaction with a counterparty under anycircumstances.

S t o p - L o s s O r d e r s a n d B a r r i e r O p t i o n sIntermediaries should ensure that there is mutualagreement with counterparties on the basis ofwhich orders—in particular stop-loss orders andbarrier options—are undertaken so as to avoiddisputes that may arise in connection with theexecution of such orders as market liquidityfluctuates. In addition, it would be prudent for acounterparty to take steps to ensure that itindependently understands market developmentsand individual trigger levels if an intermediary has

not contractually agreed to be an investmentadvisor to the counterparty.

E x e c u t i o n o f C o u n t e r p a r t y O r d e r sHandling of counterparty orders requires standardsthat promote best execution for the counterpartyin accordance with such orders, subject to marketconditions. Intermediaries should exercise cautionin ensuring that internal guidelines are followed atall times and particularly during periods ofsignificant market volatility. (For furtherinformation, refer to the Ethics section of theseGuidelines.)

P u b l i c a t i o n o f M a r k e t R e s e a r c hIntermediaries should be attentive to theindependence and integrity of any market-relatedresearch that they publish. Any views expressed inmarket research constitute the intermediary’sunderstanding of prevailing markets.

C o m m u n i c a t i o n o f I n f o r m a t i o nMarket participants are encouraged tocommunicate information regarding marketdevelopments with each other during times ofvolatility, with the understanding that eachparticipant providing and receiving informationshould view it with particular scrutiny—given thepotential for information to be false or misleadingduring periods of significant market volatility.Market participants should also pay specialattention to internal guidelines concerninghandling false or misleading information,particularly during periods of significant marketvolatility.

T r a d i n g P r a c t i c e sIt is important for market participants to adhere tothe general standard (applicable at all times) thatthey not engage in trading practices thatconstitute fraudulent, deceptive, or manipulativeacts or practices under applicable laws andregulations, or in practices that violate theirinstitution’s ethical rules or any rules of electronictrading systems.


I N T R O D U C T I O N

From time to time, events—including actions bygovernment authorities—have created significantuncertainty concerning the ability of foreignexchange market participants to settle outstandingtransactions involving currencies. Over the lastfew years, there have been several instances inwhich new government currency regulations,unanticipated civil unrest, natural disasters, orterrorist acts have made market participantsunsure of both their counterparties’ and their ownability to meet current and future contractualobligations in conformance with applicable law.These events may also prevent settlement systemsfrom performing their expected functions. Lack ofeffective communication—both among marketparticipants and between market participantsand governmental authorities—can exacerbateproblems and increase systemic pressures on globalcapital markets.

P U R P O S E

The suggestions below are meant to provide theforeign exchange community with guidance thatmight be useful before and after the occurrence offuture disruptive events. The practicesrecommended would permit market participants toact proactively with sufficient information tomanage the credit, market, legal, and operationalrisks arising from such events. Although theCommittee notes that these events, in some

37


37

for Market Disruptions

instances, may be precipitated by governmentaction, the Committee takes no view on theadvantages or disadvantages of particulargovernment actions or sovereign policiesregarding foreign currency trading.

As in any best practice recommendation, theCommittee’s views are not meant to, and indeedcannot, replace the terms of parties’ negotiatedtransactions. When making a recommendation, theCommittee attempts to note the applicableprovisions of the common market standardagreements that participants may have in place.But specific terms between parties and any otherlegal requirements will always govern suchrelationships and should be the first place thatmarket participants look to resolve differences orseek solutions to new situations.

T H E I M P O R T A N C E O F I N F O R M A T I O NS H A R I N G

The Committee believes that it, along with othermarket-based industry groups, can contribute toalleviating concerns and to allowing the market tofunction in line with market expectations byproviding a forum for information sharing, and, incertain instances, recommending specific bestpractices. The Committee’s role in response to anevent or the issuance of an order, law, or regulationis to draw the attention of market participants tochanges that may affect the way business is done.The Committee will also disseminate informationthat it receives about the details of an event orgovernment action that has, or could have, amaterial impact on the foreign exchange marketeither in a country or by involving a country’scurrency.As a central and well-known industry body,the Committee can encourage communicationbetween trade counterparties and act as a liaisonwith other industry groups so that marketparticipants can determine the best course in thecontext of their trading relationships. Ifappropriate, the Committee may encourage marketparticipants to adopt measured reactions to eventssuch as unexpected natural or governmental actsthat increase market stress. Finally, to the extent

that consultation with a broad array of marketparticipants does not resolve uncertainties, theCommittee may publicly request needed clarificationfrom the relevant authorities.

P A S T E V E N T S

The Committee has gained substantial experiencein coordinating communication and providingsuggested best practices in response to certainmarket events. In coordination with other industrygroups, the Committee has published guidance forthe foreign exchange community during pastdisruptive events. Most notably, the Committeeoffered guidance in reference to certain exchangecontrols involving the Malaysian ringgit in 1998(see the Committee’s 1998 announcement, ForeignExchange Committee Recommends Closeout ofRinggit Positions), regulatory restrictions involvingthe Indonesian rupiah in 2001 (Foreign ExchangeCommittee Recommendations Regarding RupiahPositions), and rate ambiguities involving theTaiwan dollar in 2001 (Foreign ExchangeCommittee Endorsement Regarding the TaiwanDollar). During those events, the Foreign ExchangeCommittee had the opportunity to endorse orenhance recommendations made by the SingaporeForeign Exchange Market Committee that provedinstrumental in the Committee’s ability to publishuseful information for the financial community.

The Committee has no rigid criteria fordetermining whether to issue guidance, but ratherseeks to respond to the information needs of themarket when disruptive conditions threaten.Although committee statements are not appropriatein all circumstances, they can provide information aswell as serve as a basis for the beginning of bilateraldiscussions between market participants.

The Committee has also, from time to time,acted as an information conduit for all members ofthe foreign exchange community, including thosenot affiliated with the Committee. Although thesecommunication efforts may not result in thepublication of formal Committee views, they servean important purpose by promoting the continuedsmooth operation of the financial markets. Various


incidents have taught the Committee thatcommunication and additional information createa climate where market participants can actconsistently with the law and market expectationswithout exacerbating conditions or creatingmarket distortions.

The Committee’s purpose in issuing specificrecommendations or sponsoring informationaldiscussions is always to preserve the fair andefficient functioning of the foreign exchangemarketplace within the boundaries of applicablelaw. In this regard, under no circumstance does theCommittee condone any actions by any of itsmembers that would be in contravention of law,including antitrust law.

B E S T P R A C T I C E S

Although the Committee can function as aclearinghouse of information during times ofmarket stress, institutions themselves can take anumber of steps to prepare for disruptive events.Institutions should:

� Develop contingency settlementarrangements that can be put in place quicklyand that are sufficient to accommodate thelevel of the institution’s business activityduring a disruptive event,

� Ensure that relevant persons within theinstitution understand the settlement systemsthat they rely on, either directly or indirectly,to settle transactions so that the institutionmay assess the impact of physicaldislocations and similar events that mayimpede timely settlement,*

� Ensure that counterparties provide contactsavailable at any time, including off-hours,

� Publicize contingency contacts and haveavailable up-to-date and comprehensivecontingency contact information forcounterparties, (including front-office,operations, and legal professionals), and

� Designate a point person responsible forgathering, coordinating, and internallydisseminating information on market events,sovereign actions, or natural events that couldaffect settlements; this person should alsomaintain lists of useful contacts at relevantgovernment, regulatory, and settlementagencies.

In addition, after a market disruption and duringtimes of continued uncertainty, institutions should:

� Be aware of announcements of theCommittee and other industry groups, andpossibly contact local market groups toobtain additional information,

� Be prepared for senior personnel toparticipate in industry efforts to gather anddistribute clarifying information,

� Contact the appropriate government,regulatory, or settlement officials to requestclarification of new rules or requirements, and

� Contact counterparties with which aninstitution has effected trades in order toshare information on the event and to beginthe process of confirming trade terms anddiscussing the possible effect of the event ontransactions.

Supplementary Guidance for Market Disruptions 39

*Many market participants were unaware of the details of the settlement process in Indonesia in 1998, and as a result were unable to react quickly when civilunrest effectively prevented settlement.

The growth of electronic trading in the foreignexchange market is one of the most significanttrends of recent years. Screen-based systems

have rapidly replaced the phone as a conduit forconducting trades, enhancing the efficiency of thetrading process as well as reducing trade errorsbecause trade information can be entered justonce—rather than being re-keyed several timesduring the trade and settlement process.

Electronic front-end trading systems are alsochanging the way in which counterparties validateor confirm trades with one another. Industry bestpractices recommend, for example, thatcounterparties confirm each trade with oneanother via confirmation messages (that is, bySWIFT MT300, fax, paper, or phone). Somecounterparties, however, have chosen on abilateral basis to eliminate confirmation messageswith one another and to use electronic affirmationfacilities offered by electronic trading systemsinstead. Such facilities provide for an independent(that is, nondealer) validation of trade details.Some trade systems alternatively send tradesummaries directly to each counterparty’s backoffice for verification. Market participants canaffirm that the trade details reflected in theelectronic trading system correspond to their owninternal books and records and that propercontrols are followed. However, it is important torecognize that such validation exercises do notnecessarily confirm that trade details have beenentered correctly into the books and records ofeach counterparty.

T41


41

on Electronic Validations and Confirmation Messaging


The Committee continues to recommend back-office confirmation messaging as a means ofcontrolling operational and settlement risks.Market participants who choose to replaceconfirmation messaging with trade validation fromelectronic front-end trading systems, however,should carefully consider both the benefits andrisks of doing so.

B EN E F I T S

� Automates the confirmation phase,minimizing the need for dual entry of tradedata and enhancing straight-throughprocessing,

� Eliminates the cost of sending confirmationmessages as well as the operational expenseof processing confirmations manually,

� Offers a consistent system for both small andlarge market participants to verify tradeinformation in a timely and efficient manner,and

� If two counterparties use electronic validationin common, trade information can beconfirmed against an independent andunbiased third-party record.

R I S K S

� Affirmation facilities connected withelectronic front-end systems may not allowcounterparties to validate whether the tradehas been accounted for properly in the booksand records of each firm, even though theyallow counterparties to confirm that tradedetails are accurate,

� Electronic front-end systems may not capturesufficient data to provide a robust audit trailin the event of a dispute, even though theyprovide sufficient data for matching thetrading terms,

� Without confirmations, electronic databasesmay not accurately reflect trade amendmentsor adjustments, increasing the chance ofsettlement errors,

� Eliminating confirmations may also limit theindependence of the trade validation processby the back office and may increase the riskof unauthorized (that is, rogue) trading,

� In the absence of standard settlementinstructions (SSIs), eliminating confirmationmay compromise the ability of eachcounterparty to ensure that settlementinstructions are accurate, and

� Electronic trading systems that do incorporateSSIs may not be updated correctly withoutper-trade confirmation; new accounts open andsettlement instructions change, but this maynot be communicated to all counterparties.

S UMMARY

Market participants who eliminate confirmationmessaging are urged to have sufficient measuresin place to mitigate the risks noted above. TheCommittee recognizes that future developments inelectronic trading systems may further safeguardtrade validation. Careful analysis is necessary,however, to be certain that risks are sufficientlyrecognized and managed. The Committee willcontinue to monitor the evolving electronicmarketplace and provide guidance as necessary.

43

Issues and Recommendations

ContingencyPlanning

On Tuesday, September 11, 2001, thedestruction of the World Trade Center resultedin widespread damage throughout the

financial community. Both front- and back-offices atmany downtown financial firms were destroyed orevacuated. Affected firms quickly shifted tocontingency facilities to restore operations,however, and the importance of robust contingencyplanning for all firms was highlighted.1

Although the events of September 11 resulted insome disruption of business in the foreignexchange market, the market continued tofunction, thanks, in part, to comprehensivecontingency planning by financial firms inpreparation for Y2K. On the whole, marketparticipants were well-equipped to initiatecontingency operations and communicationchannels with one another. Consequently, theforeign exchange industry responded quickly andefficiently to events as they unfolded, and the scopeof disruptions among foreign exchange participantswas surprisingly narrow. Yet the disruptions ofSeptember 11 highlighted several risks specific tothe foreign exchange market that foreign exchangeproviders should note as they reassess theirpreparedness for future market events.

As an advisor to the foreign exchangecommunity, the Foreign Exchange Committee (theCommittee) serves as a forum for offeringguidance during market disruptions. Toward thisend, the Committee has summarized below someof the issues reported in the foreign exchangemarketplace on September 11 and subsequent

O45

Issues and Recommendations

ContingencyPlanning

45

days. The majority of these issues affected arelatively limited subset of market participants, butthey provide an opportunity for all marketparticipants to consider their firm’s preparednessfor such events. In addition to other Committeedocuments such as the Guidelines for ForeignExchange Trading Activities, the Committee offerssupplementary guidance for firms’ businesscontinuity planning efforts and encourages foreignexchange providers to review their contingencypreparedness in light of them.

S E T T L E M E N T A N D P AY M E N T

� Systems problems reportedly resulted indelayed settlement for some proprietaryforeign exchange trades.

� Third-party payment delays constrained somepayment flows, resulting in additionalpayment delays.

� Some firms reported elevated levels of tradefails on September 11 and 12. The numberand size of failed trades diminished insubsequent days. No firms reported alarminglevels of fails.

Recommendation: Market participants’ businesscontinuity plans should incorporate the businessrecovery capabilities of their internal foreignexchange transaction-processing facilities, as wellas those of their critical service providers—particularly clearing and third-party settlementbanks.

L I Q U I D I T Y

� Interdealer liquidity was reportedlyconstrained at times by disruptions inelectronic trading systems.

� Connectivity to interdealer electronic tradingsystems was reportedly intermittent in NewYork. Many firms, however, accessed thesesystems in other locations, such as London.

� Some foreign exchange providers did nothave electronic trading systems at theircontingency locations.

� Dealers reported that liquidity for dollar-based currency pairs did not migrate toalternative electronic trading systems asrapidly as it had during past servicedisruptions.

� Many dealers reported difficulty reachingvoice brokers in New York during the week ofSeptember 11.

Recommendation: Market participants’ businesscontinuity plans should reflect their liquidityrequirements and the business continuitycapabilities of their critical liquidity providers,including disaster recovery site access to electronictrading services.

Market participants should be mindful of thecontingency arrangements made available by theirkey liquidity providers.

C O N F I R M A T I O N S A N D N E T T I N G S E R V I C E S

� Participants reported some disruptions inconfirmations, netting, and settlementservices.

� Affected firms reportedly netted tradesmanually.

� Firms concentrated on reconciliations—ensuring that reconciliations were completedbefore authorizing additional trades.

Recommendation: Market participants’ businesscontinuity plans should take into consideration the


1Several regulatory bodies offer guidance on firmwide contingency planning. Federal Reserve guidance can be found athttp://www.newyorkfed.org/bankinfo/circular/10952.pdf. Broker dealers may look to several documents from the Securities and Exchange Commission forguidance, including http://www.sec.gov/divisions/marketreg/lessonslearned.htm and http://www.sia.com/business_continuity/pdf/bestpractices.pdf.

technical support requirements of their criticalprocessing systems, including contingency siteaccess to critical confirmation and netting systemsand increased manual trade processingrequirements.

Business continuity plans should incorporatethe contingency arrangements made available bycritical confirmation and netting systems.

I N D U S T R Y W I D E A N D F I R M W I D EC O M M U N I C A T I O N

� Industrywide conference calls served as aforum for exchanging information andhighlighting trading and settlement issues.

� Conference calls between the Federal ReserveBank and the foreign exchange communitywere an important means of communication.

� Participants composed a contact list ofemergency contact information for trading,legal, and operations staff.

� Participants recommended that banks re-evaluate contingency plans to ensure thatfront- and back-office staffs are trained andprepared for evacuation. Operationalredundancy should include staff cross-trainingin the event of an emergency.

Recommendation: Market participants shouldensure that business continuity plans are properlyintegrated with business continuity plans acrosstheir organization—particularly in operations,treasury, and technology.

Market participants should ensure that theirbusiness continuity plans address the ability ofpersonnel to relocate during the crisis.

Market participants should maintain emergencycontact information for their primarycounterparties. Information records should includecontingency site phone numbers and key personnelcontact information. Market participants shouldperiodically monitor updated contact informationmade available on the Foreign ExchangeCommittee’s web site (www.newyorkfed.org/fxc).

I N D U S T R Y G R O U P C O O R D I N A T I O N

� The Foreign Exchange Committee coordinatedwith the Singapore Foreign Exchange MarketCommittee (SFEMC) on best practicesregarding the Taiwan dollar (see statement athttp://www.newyorkfed.org/fxc/taiwan.pdf).

Recommendation: During market disturbances,market participants should pay special attention toguidance published by industry groups such as theForeign Exchange Committee and the SingaporeForeign Exchange Market Committee.

Regional foreign exchange committees shouldexercise best efforts to communicate marketrecommendations to one another prior to theirpublic release.

Contingency Planning: Issues and Recommendations 47

49

Turnover in the United States

The April 2001Foreign Exchange

and Interest RateDerivatives Markets

SurveyTurnover in the United States

This report presents the United States turnoverportion of the 2001 Central Bank Survey ofForeign Exchange and Derivatives Markets. The

survey is part of an ongoing series of surveysconducted by central banks every three years on thesize, structure, and trends in the foreign exchangeand derivatives markets. The survey collected dataon over-the-counter transactions executed in theUnited States during April 2001 in the foreignexchange and derivatives market. The participantsincluded both domestic- and foreign-owned dealersin the United States. Seventy-nine dealers (sixty-sixbanks and eleven nonbanks) participated in theforeign exchange survey and fifty-four dealers(forty-eight banks and six non-banks) participatedin the derivatives survey.

T51

The April 2001Foreign Exchange

and Interest RateDerivatives Markets

SurveyTurnover in the United States

51

This report encompasses two surveys. TheForeign Exchange Market Survey includes foreignexchange (FX) spot, forward, and swap instruments.The Foreign Exchange and Interest Rate DerivativesMarkets Survey1 incorporates forward rateagreements (FRAs) currency and interest rate swaps,and foreign exchange and interest rate options.

S U M M A R Y O F T H E F O R E I G N E X C H A N G EA N D D E R I V A T I V E S S T U D I E S

� Daily turnover in the U.S. foreign exchangemarket (spot, forwards, and FX swaps) duringApril averaged $254 billion, after adjustingfor the double reporting of transactionsbetween reporting dealers in the UnitedStates. This is a decline of 28 percent fromthe April 1998 survey. The decline in turnoverwas 12 percent after removing the effects ofchanges in exchange rates.

� Daily turnover for the other derivativesmarkets (FRAs, interest rate swaps, crosscurrency interest rate swaps, and foreignexchange and interest rate options) averaged$135 billion. This represents a 48 percentincrease (a 14 percent annualized growthrate) from the prior survey.

T h e F o r e i g n E x c h a n g e M a r k e t S u r v e yDaily trading volume in the U.S. foreign exchangemarket averaged $254 billion in April 2001, down28 percent from the previous survey. This is the firstdecline since these surveys began.2

Several developments contributed to thisdecline. First, the introduction of the euroeliminated trading in the European currencies itreplaced. Second, there was significantconsolidation among financial institutions. Thenumber of participating dealers declined toseventy-nine in the 2001 survey from ninety-threein 1998 and one hundred and thirty in 1995. Third,increased trading through electronic brokers has

enhanced the market’s price discovery process,reducing the ripple effect on turnover of newbusiness. Fourth, some foreign-owned institutionshave centralized trading, shifting trading from theUnited States to their home countries. Severallarge U.S. institutions also shifted part of theirtrading operations to London. Despite the overalldecline in turnover, several dealers indicated thatbid-offer spreads and liquidity were similar tolevels at the time of the last survey.

I n s t r u m e n t sThe volume of both foreign exchange spot andswap transactions declined about 30 percent fromthe previous survey. However, transactions in theforward market showed little change.

FX swaps continued to account for the largestshare of turnover (45 percent). The data for FXswaps also show that:

� The U.S. dollar was one of the currencies in98 percent of FX swaps.

� The maturities of foreign exchange swapshave changed little since the last survey.Approximately 68 percent of swaps hadmaturities of seven days or less, down about1 percent from 1998. Swaps with maturitiesbetween seven days and one year increasedabout 1 percent to 31 percent.

Spot trades accounted for 41 percent of turnover,down from 42 percent in the previous survey.

Forward transactions rose to 14 percent of thetotal from 11 percent in the previous survey.

� On average, maturities in the forward marketlengthened. Transactions with maturities ofseven days or less declined to 40 percent ofthe total from 50 percent in 1998 whiletrades with maturities of over seven days toless than a year rose to 59 percent from48 percent, with transactions over a yearaccounting for the remainder.


1The survey is often also referred to in the industry as the Triennial Survey of Foreign Exchange.2This total is adjusted for the double reporting of transactions between participating dealers in the United States.

� The proportion of forward trades that weredesigned as non-deliverable forwardsincreased to 16 percent, up from 8 percent inthe previous survey.

C u r r e n c i e sThe U.S. dollar was traded in 93 percent of alltransactions, up slightly from 90 percent in the lastsurvey. The euro was the second most activelytraded currency, and was one of the currencies in39 percent of trades. (In the 1998 survey, theGerman mark was the second most actively tradedcurrency with 35 percent of the total.) The yenremained the third most active currency at27 percent (up from 24 percent), followed by theCanadian dollar at 8 percent (up from 4 percent),and the Swiss franc at 7 percent (down from9 percent). Other currencies were involved in13 percent of transactions, compared with 9 percentin 1998.

� The most actively traded currency pair wasthe U.S. dollar against the euro. Dollar/eurotransactions accounted for 33 percent of totalturnover. (In 1998, dollar/mark was the mostheavily traded currency pair with 25 percentof the total.) Dollar/yen was the second mostactive currency pair with 24 percent ofturnover (up from 22 percent in 1998).

M a r k e t S t r u c t u r eIn addition to the introduction of the euro, theforeign exchange market has experienced a numberof significant changes since the 1998 survey.

Trading through all types of electronic tradingsystems accounted for 71 percent of trading in thespot market.

Of this amount, trading through interdealer,automated order-matching systems (EBS, Reuters2002) rose to 54 percent of spot turnover, from lessthan a third in the previous survey.

� Trading through all types of electronicsystems together accounted for 79 percentof spot trading in the dollar/euro pair,62 percent for dollar/yen, and 58 percent foreuro/yen.

Dealers reported that 61 percent of their spot,forward, and FX swap transactions were conductedwith counterparties outside the United States.

The consolidation of financial institutions led toan increase in the market shares of the largestforeign exchange dealers. The list of the largestdealers, however, varies by instrument, and thelists of the top five and top ten dealers havechanged considerably since the last survey.

� The market share of the top ten firmsincreased to 66 percent from 52 percent. Thefive largest dealers in spot trading increasedtheir share of turnover to 41 percent from33 percent in 1998.

� In the forward market, the market shares ofthe top five and the top ten increased,respectively, to 49 percent from 39 percentand to 69 percent from 59 percent.

� In the foreign exchange swaps market, thetop five firms’ share of turnover increased to46 percent from 35 percent. The share of the topten increased to 68 percent from 58 percent.

The survey asked dealers to assess foreignexchange and derivatives turnover during April interms of trading patterns and trends.

� Trading during the month was considerednormal by 65 percent of survey participants,below normal by 29 percent, and abovenormal by 6 percent.

� Turnover during the previous six months wasconsidered steady by 62 percent, was seen asincreasing by 21 percent, and decreasing by17 percent.

the April 2001 Foreign Exchange and Interest Rate Derivatives Markets Survey 53

Note: This reprint presents an abridged version of the original report. It excludes details concerning survey terms and methods, supplementary tables, andcharts. Copies of the complete report are available from the Public Information department of the Federal Reserve Bank of New York or from the web sitewww.newyorkfed.org. To access the global study, please see the Bank of International Settlements website at http://www.bis.org/publ/rpfx02t.pdf.

O V E R A L L V O L U M E T R E N D S F O R T H EF O R E I G N E X C H A N G E A N D I N T E R E S T R A T ED E R I V A T I V E S M A R K E T S S U R V E Y

Daily turnover in the foreign exchange andderivatives markets (FRAs, interest rate swaps,cross currency interest rate swaps, and foreignexchange and interest rate options) rose48 percent from the previous survey to $135 billionafter adjusting for the double reporting of tradesby participating dealers in the United States. Thisrepresented a 14 percent annualized growth rate,a significant decline from the 20 percent growthrate between the 1995 and 1998 surveys.

� Average daily turnover for interest rate swapswas $82 billion, an increase of more than160 percent since the last survey. Turnover forFRAs was the next largest at $23 billion, anincrease of 44 percent since 1998.

� As in 1998, U.S. dollar-denominated contractsand contracts with the dollar on one sideaccounted for more than 83 percent ofturnover in these instruments. The share ofdollar-denominated contracts ranged from81 percent for interest rate swaps to92 percent for currency swaps.

Trades with local counterparties accounted for44 percent of the total, down from 55 percent inthe 1998 survey. There was, however, considerablevariation across the five instruments.

� Counterparties for 77 percent of interest rateoptions were local.

� Counterparties for FX options, currencyswaps, interest rate swaps, and FRAs weremore likely to be located outside the UnitedStates.

Trading in the derivatives market is moreconcentrated than it is in the foreign exchangemarket.

� Seventy-one percent of turnover in theseinstruments was transacted betweenreporting dealers, up from 46 percent in1998. Trades with other financial institutionsaccounted for 20 percent of turnover in theseinstruments. Trades with nonfinancialcustomers represented 8 percent of the total.

� Since the last survey, the proportion oftrading of the ten largest dealers hasincreased for currency swaps, forex options,and interest rate swaps, while decliningsomewhat for interest rate options and FRAs.



1 . T U R N O V E R

a) Turnover is the volume of transactions during April2001 in U.S. dollar equivalents. The amount of eachtransaction is reported before the effects of any net-ting arrangements. In the case of swap transactions,only one leg is reported.

b) Three types of counterparties were covered by thesurvey:

1) reporting dealers participating in the survey2) other financial firms, and3) nonfinancial customers.

Each type of counterparty was broken down intolocal and cross-border—resulting in a total of sixcategories for counterparties.

c) Market totals. Transactions between two participat-ing dealers were reported twice, once by each ofthem. Survey figures for market totals are thereforeadjusted to avoid double counting of such trades.Adjusted figures are market totals after adjustingfor double reporting by participating dealers.Unadjusted figures are gross totals without adjust-ing for double reporting. The data in this report areadjusted figures unless otherwise noted.

Since transactions between local reporting deal-ers were reported twice, the total of local dealertransactions is divided by two for the adjusted total.

d) Average daily turnover was obtained by dividingtotal volume by twenty trading days. Although therewere officially twenty-one business days in the UnitedStates during April 2001, Good Friday, April 13, wasnot counted as a trading day since little tradingpwas done.

e) Turnover for non-U.S. dollar transactions wasreported in U.S. dollar equivalents using exchangerates at the time of the transactions.

f) Changes in exchange rates affect the comparisonsof turnover volumes between surveys. Turnover ofnon-U.S. dollar transactions were reported in U.S.dollar equivalents using exchange rates at the timeof the transaction. As a result, the rise of the dollar

against most foreign currencies since the last surveylowered turnover in foreign currency transactionswhen converted to dollars. (Market turnover, calcu-lated by revaluing 1998 turnover in foreign curren-cies at 2001 dollar exchange rates, was down about12 percent, compared with the 28 percent decline inunadjusted dollar terms.)

2 . L O C A T I O N

Trade vs. book location. Transactions were reported on thebasis of the location of the dealer agreeing to do the transac-tion. A dealer in New York, for example, might engage in atrade that is booked at a London affiliate. In that case, thetrade location is New York and the book location is London.The transaction would be included in the turnover figures inthe U.S. survey. If a trader in London entered into a trade, butthe trader’s firm booked the trade in its New York affiliate, thetransaction would be included in the institution’s surveyreport to the Bank of England.

3 . P A R T I C I P A T I N G F I R M S

A total of seventy-nine dealers—sixty-eight banks and elevennonbanks—participated in the foreign exchange part of thesurvey. (A total of ninety-three firms participated in 1998 andone hundred and thirty participated in 1995.) A total of fifty-four dealers—forty-eight banks and six nonbanks—partici-pated in the foreign exchange and interest rate derivativespart of the survey. (In 1998, sixty participated, and in 1995,fifty-one participated.) The dealers included both U.S. institu-tions as well as foreign institutions with dealing operations inthe United States (Annex II). As in 1998, all of the largestdealers participated.

Dealers were asked to participate based on several criteria,including participation in the last survey, the firm’s outstand-ing contracts reported in bank call reports, or, in the case ofnonbanks, outstanding contracts reported in published finan-cial statements.

Data provided on the amount of trading through electron-ic systems were derived from the reports of dealers. As in pastU.S. surveys, foreign exchange market brokers were also sur-veyed. These data cannot be published, however, in view ofthe very small number of participants. Only two voice brokers

ANNEX ISurvey Terms and Method

participated in the survey this year, down from nine in 1998,as mergers and industry consolidation reduced the number ofparticipants in this business. Electronic brokers participatingnumbered only two as well.

4 . I N S T R U M E N T D E F I N I T I O N S

Foreign exchange spot: Single purchase or sale of currency forsettlement not more than two business days after the deal iscontracted.

Foreign exchange forward (outright forward): Currency tradeto be settled at an agreed time in the future—more than twobusiness days.

Non-deliverable forwards: Forward transaction where settle-ment is made by a cash payment reflecting the market valueof the contract instead of the exchange of currencies.

Foreign exchange swap: Simultaneous exchange of two cur-rencies on a specific date at a rate agreed at the time of thecontract, and a reverse exchange of the same two currenciesat a date further in the future at a rate agreed at the time ofthe contract. Short-term swaps carried out as “tomorrow/nextday” transactions are included in this category.

Currency swap: A contract that commits two counterparties toexchange streams of interest payments in different currenciesfor an agreed period of time and to exchange principalamounts in the respective currencies at an agreed exchangerate at maturity.

Currency option: Option contract that gives the right to buy(call option) or sell (put) a currency with another currency at aspecified exchange rate during a specified period. This categoryincludes currency warrants and multi-currency swaptions.

Forward rate agreement: Interest rate forward contract inwhich the rate to be paid or received on a specific obligationfor a set period of time, beginning at some time in the future,is determined.

Interest rate swap: Agreement to exchange periodic paymentsrelated to interest rates on a single currency. The swap can befixed for floating, or floating for floating, based on differentindices. This group includes those swaps whose notional prin-cipal is amortized according to a fixed schedule independentof interest rates.

Interest rate option: Option contract that conveys the right topay or receive a specific interest rate on a predetermined prin-cipal for a set period of time.

Interest rate cap: Option contract that pays the differencebetween a floating interest rate and the cap rate.

Interest rate floor: Option contract that pays the differencebetween the floor rate and a floating interest rate.

Interest rate collar: Combination of cap and floor.

Interest rate swaption: Option to enter into an interest rateswap contract.

Interest rate warrant: Long-dated (more than one year) inter-est rate option.

Bond option: Option contract that conveys the right to pur-chase or sell a fixed income security. The survey does not,however, include options embedded in bonds or notes.



AIG InternationalAmerican Express Bank LimitedBear StearnsGeneral Re Financial ProductsGoldman SachsING Barings (US Capital Markets)

Lehman BrothersMerrill LynchMorgan Stanley Dean WitterPrudentialSalomon Smith Barney Holdings

ANNEX II:Foreign Exchange Survey Participants

Foreign Exchange Dealers

N O N C O M M E R C I A L B A N K S

ABN AMRO North AmericaAllfirst Financial IncorporatedAsahi BankBanca Commericale ItalianaBanca di RomaBanca Monte dei PaschiBanca Nazionale del LavoroBanco Bilbao Vizcaya ArgentariaBanco Santander Central HispanoBank Julius Baer and CompanyBank Leumi le-Israel CorporationBank of America CorporationBank of MontrealBank of New York Bank of Tokyo-Mitsubishi LimitedBank One CorporationBarclays CapitalBNP ParibasCanadian Imperial BankChase Manhattan Christiania Bank OGCitigroupComerica BankCommercial Bank of New YorkCommerzbank AGCommonwealth Bank of AustraliaCredit Agricole SecuritiesCrédit LyonnaisCredit Suisse GroupDai-Ichi Kangyo BankDen Danske Bank AGDen Norske Bank ASADeutsche Bank AGDresdner Bank AG

Erste BankFirstar CorpFuji Bank LimitedHuntington BancsharesImperial BankIndustrial Bank of JapanKeycorpMarshall & Ilsley CorporationMBNA CorporationMellon Financial CorporationMerita Bank PLCNatexis Banques PopulairesNational City BankNorddeutsche Landesbank GirozentraleNorinchukin BankNorthern Trust CorporationPacific Century Financial CorporationPeople’s Mutual HoldingsRabobank NederlandSanwa Bank LimitedSkandinaviska Enskilda BankenSociété GénéraleStandard Charter BankState Street Bank and Trust CompanySumitomo Mitsui Banking CorporationSun Trust BankSvenska Handelsbanken ABTokai BankU.S. BankUBS AGUniCredito ItalianoUnionbancal CorpWachovia BankWells Fargo

C O M M E R C I A L B A N K S


AIG International IncorporatedBear StearnsGeneral Re Financial ProductsGoldman Sachs

Merrill LynchMorgan Stanley Dean WitterSalomon Smith Barney Holdings

Foreign Exchange Survey ParticipantsDerivatives Dealers

N O N - C O M M E R C I A L B A N K S

ABN AMRO North AmericaAllfirst Financial IncorporatedBanca di RomaBanca Monte dei PaschiBanco Bilboa Vizcaya ArgentariaBank of America CorporationBank of MontrealBank of New YorkBank of Tokyo-Mitsubishi LimitedBank One CorporationBarclays CapitalBB and T CorporationBNP ParibasChase Manhattan CorpCiti GroupComerica BankCommerzbank AGCompass BanksharesCredit Agricole SecuritiesCrédit LyonnaisCredit Suisse GroupDai-Ichi Kangyo BankDen Danske Bank AG

Deutsche Bank AGDresdner Bank AGErste BankFirstar CorporationFuji Bank LimitedHuntington BancsharesIndustrial Bank of JapanKeycorpMellon Financial CorporationMerita Bank PLCNational City BankNorddeutsche Landesbank GirozentraleRabobank NederlandSanwa Bank LimitedSociété GénéraleState Street Bank and Trust CompanySumitomo Mitsui Banking CorporationSun Trust BankSvenska Handelsbanken ABUBS AGUnionbancal CorporationWachovia BankWells Fargo

C O M M E R C I A L B A N K S

59

Dear Mr. Virgilio:

The Foreign Exchange Committee and the Singapore Foreign Exchange MarketCommittee commend SWIFT’s responsiveness to our recommendations relatedto the format of SWIFT confirmation messages. As part of our joint letter datedDecember 15, 2000, we suggested the following language for the publishedterms and conditions for SWIFT Field 77 D:

Rules: This field is to be used to refer to specific agreements between theparties to the trade. This field is not to be used to impose any additionalconditions or references to local regulations that are not covered in mas-ter agreements. If the field is not present, the deal conforms to the usualbanking practice.

Subsequently, SWIFT inquired if the Foreign Exchange Committee and theSingapore Foreign Exchange Market Committee would support a minor revi-sion to the recommended language. The proposed definition was revised asfollows:

Rules: This field is to be used to refer to specific agreements between theparties to the trade. This field is not to be used to impose any additionalconditions or references to local regulations that are not covered in mas-ter agreements. Any other information included in this field must havebeen previously agreed upon by the trading parties. If the field is not pres-ent, the deal conforms to the usual banking practice.

N

2 1 2 - 7 2 0 - 6 6 5 1 ● F a x : 2 1 2 - 7 2 0 - 1 6 5 5 ● f x . c o m m i t t e e @ n y . f r b . o r g ● h t t p : / / w w w . n e w y o r k f e d . o r g / f x c

COMMITTEE LETTER ● ISSUED JOINTLY WITH THE SINGAPORE FOREIGN EXCHANGE MARKET COMMITTEERegarding A Proposed Addition to SWIFT Confirmation Messages

June 6, 2001

Robert VirgilioSWIFT200 Park Avenue, Floor 38thNew York, NY 10166


The two groups, in consultation with the Foreign Exchange Committee’sOperations Managers Working Group, condone the recommended change. Weconcur that the proposed definition will help to simplify trading procedure andlimit confusion and errors.

We welcome any additional questions regarding our letter and appreciateSWIFT’s attention to our requests.

Very truly yours,

David Puth Jeanette WongChairman ChairmanThe Foreign Exchange Committee The Singapore Foreign Exchange

Market Committee

61

Dear Mr. Koleba:

The Foreign Exchange Committee’s Operations Managers Working Group haslong been an advocate of streamlining the back-office process while ensuringthe adherence to our recommended 50 Best Practices in monitoring and con-trolling operational risk. An important part of the foreign exchange processflow is the confirmation of the trade as well as the resulting settlement of theunderlying obligation.

In this regard, it is with great interest that we have been following theprogress of the CLS Bank initiative to eliminate settlement risk as well as yourcommittee’s work in identifying the opportunities for leveraging the CLSinstruction match process as a substitute for the trade confirmation match.

Having reviewed version 2.1 of your committee’s paper on the elimination ofSWIFT MT300 matches in favor of the CLS instruction match, we add our sup-port to your efforts and wish to highlight several key points in your document:

� Institutions participating in CLS should establish a control process to mon-itor the status of their instructions at CLS Bank. This monitoring processshould identify unmatched trades on the trade date.

� Instructions should be submitted to CLS Bank within the two-hour limitrecommended as a best practice.

N


C O M M I T T E E L E T T E RCommenting on the CLS Bank Proposal to Change the Trade Confirmation Process

June 6, 2001

William KolebaCLS Confirmation Exchange CommitteeC/O The Bank Of New YorkCLS Project Office32 Old Slip, 16th FloorNew York, NY 10286


� Banks considering eliminating the MT300 confirmation match on a bilateral basis should ensure their processing and confirmation systemshave been adjusted to accommodate the selective nature of match substitution with regard to counterparties and currency pairs while stillsupporting settlements outside of CLS, as needed.

� Procedural changes must also be implemented to ensure that key controlsare in place to adequately identify exceptions.

Those institutions that are able to participate comfortably in this match substitution process may indeed find an efficient processing method that maintains accuracy and control.

We thank you for submitting your document to us for evaluation and including us in the discussion process.

Very truly yours,

David Puth Jeanette WongChairman ChairmanThe Foreign Exchange Committee Singapore Foreign Exchange Committee

63

Regarding Review of Outstanding Trades in theIndonesian Rupiah during Uncertain ConditionsBank Indonesia (the central bank of Indonesia) recently announced certainrestrictions with regard to foreign exchange transactions involving theIndonesian rupiah. While Bank Indonesia has attempted to clarify theserestrictions, continued uncertainty, particularly concerning the scope of therestrictions, remains throughout the foreign exchange community. Further officialclarification may be provided in the coming days, and, indeed, the Committeeencourages Bank Indonesia to provide such clarification to foreign exchangemarket participants as completely, transparently, and quickly as possible.

The Committee understands that as a result of the uncertainty surroundingthe new restrictions, market participants may be exposed to unanticipated risk.The Committee recommends that each market participant with outstandingtrades that could be affected by the restrictions contact its counterparties inorder to determine jointly whether termination of these trades would beappropriate.

The Committee believes that if the parties to these affected rupiah transac-tions mutually agree to close out, then they should agree on a mutuallyacceptable closeout price as soon as possible. Market practice on closeout ofexisting transactions normally involves valuing future payments with a viewtoward determining discounted future cash flows. One resource for finding amutually agreeable closeout mechanism is a statement by the SingaporeForeign Exchange Market Committee published earlier today, “Notes ofMeeting on Settlement of Indonesian Rupiah Transactions.”

N


A N N O U N C E M E N T

February 2, 2001

65

The Foreign Exchange Committee Endorses theSingapore Foreign Exchange Market Committee’sRecommendation regarding the Treatment of theTaiwan Dollar Fixing Rate for September 12, 2001On September 12, 2001, the daily 11:00 a.m. fixing rate for the Taiwan dollarwas published during the afternoon of September 12, leading market partici-pants to question whether the published rate reflected 11:00 a.m. trading. Inan effort to provide guidance on the treatment of the fixing rate, the SingaporeForeign Exchange Market Committee issued the attached statement recom-mending that market participants use the fixing rate of September 13 in lieuof the September 12 fixing rate. The Foreign Exchange Committee fully endorsesthis recommendation in accordance with market best practices.

Singapore Foreign Exchange Market CommitteeStatement regarding the Treatment of the TaiwanDollar Fixing Rate for September 12, 2001On the morning of September 12 (Wednesday), the Taiwan Central Bank stat-ed that the foreign exchange, futures, and the stock markets in Taiwan will beclosed. Consequent on the announcement, the foreign exchange banks inSingapore, in the interest of certainty, agreed that it would be prudent andcommercial to use the 11:00 a.m. fixing rate appearing on the following busi-ness day. Accordingly, there was no 11:00 a.m. fixing rate on that day. After11:00 a.m. the same day, the Taiwan Central Bank stated that foreignexchange trading in Taiwan would resume at 12:00 noon. Notwithstanding theresumption of foreign exchange trading at 12:00 noon, the banks decided thatit would be reasonable to maintain the agreement reached that morning touse the 11:00 a.m. fixing rate on the following business day.

N


A N N O U N C E M E N TSeptember 14, 2001

67

New and Amended Argentine Peso Rate SourceDefinitions Announced by EMTA, ISDA, and theForeign Exchange CommitteeThe Emerging Markets Traders Association (EMTA), the International Swaps andDerivatives Association (ISDA), and the Foreign Exchange Committee jointlyannounced today the following amendment to the Argentine Peso rate sourcedefinition—the ARS Official Rate—and the addition of a new rate source def-inition for the Chicago Mercantile Exchange (CME)/EMTA ARS Industry SurveyRate, in Annex A of the 1998 FX and Currency Option Definitions. Annex A isamended, effective as of July 10, 2001, to replace the current ARS Official Ratedefinition with that in (1) below, and to add the CME/EMTA ARS IndustrySurvey Rate definition in (2) below:

1. (B) “ARS Official Rate” and “ARS02” each mean that the spot rate for arate calculation date will be the Argentine peso/U.S. dollar offered rate forU.S. dollars, expressed as the amount of Argentine pesos per one U.S. dollar,for settlement on the same day, as quoted by Banco de la Nacion (inaccordance with the Convertibility Law of March 27, 1991, and RegulatoryDecree No. 529/91 of April 1, 1991, as may be amended from time totime) for that rate calculation date.

2. (C) “CME/EMTA ARS Industry Survey Rate” and “ARS03” each mean thatthe spot rate for a rate calculation date will be the Argentine peso/U.S.dollar Specified Rate for U.S. dollars, expressed as the amount ofArgentine pesos per one U.S. dollar, for settlement on the same day, calcu-lated by the Chicago Mercantile Exchange pursuant to the CME/EMTA ARSMethodology Summary which appears on the Reuters Screen EMTA Page(the EMTA website (www.emta.org) and CME website (www.cme.com) atapproximately 1:00 p.m. Buenos Aires time, or as soon thereafter as prac-ticable, on the rate calculation date. “CME/EMTA ARS Methodology” asused herein means a methodology dated and effective as of July 10, 2001,

N


A N N O U N C E M E N TJuly 10, 2001

for a centralized industrywide survey of financial institutions in BuenosAires that are active participants in the Argentine Peso/U.S. Dollar spotmarkets for the purpose of determining the CME/EMTA ARS IndustrySurvey Rate, which is published by EMTA and may be obtained fromEMTA’s website at www.emta.org.

P R A C T I T I O N E R ’ S N O T E S :� The ARS Official Rate is published by Banco de la Nacion on Reuters Page

ARSX=BNAR daily between 3:00 p.m. and 5:00 p.m. This information is notincluded in the ARS Official Rate definition because the Argentinepeso/U.S. dollar exchange rate is established by the 1991 ConvertibilityLaw. This Law determines the ARS Official Rate for a rate calculation date,regardless of when or where the ARS Official Rate is published on suchrate calculation date.

� Market participants may agree to the CME/EMTA ARS Industry Survey Ratein accordance with EMTA’s recommendations for use in the event of aprice source disruption or of a price materiality disruption event. Details ofthese disruption events are available in the 1998 Foreign Exchange andCurrency Option Definitions.

� Parties that specify in confirmations that a particular version of Annex Aapplies to their trades should reference Annex A effective as of July 10,2001, if they desire to incorporate the revised ARS Official Rate andCME/EMTA ARS Industry Survey Rate definitions into their trades. If partiesdo not specify in their confirmations a particular version of Annex A, theabove Argentine peso rate source definitions would apply to trades thatincorporate the 1998 Foreign Exchange and Currency Option Definitionsand have a trade date on or after July 10, 2001.


69

The EMTA, ISDA, and Foreign Exchange CommitteeAnnounce the Addition of New Korean Won RateSource Definitions to Annex A, Effective as ofJune 20, 2001.The Emerging Markets Traders Association (EMTA), the International Swaps andDerivatives Association (ISDA), and the Foreign Exchange Committee jointlyannounced on June 20, 2001, the following amendment to the Korean wonrate source definitions in Annex A of the 1998 Foreign Exchange and CurrencyOption Definitions. Annex A is amended, effective as of June 20, 2001, toreplace the current KRW rate source definitions with the following:

(A) “KRW KFTC18” and “KRW02” each mean that the spot rate for a ratecalculation date will be the Korean won/U.S. dollar market average tomrate, expressed as the amount of Korean won per one U.S. dollar, forsettlement in one business day reported by the Korea FinancialTelecommunications and Clearing Corporation, which appears on theReuters Screen KFTC18 Page to the right of the caption “USD Today” thatis available at approximately 5:30 p.m., Seoul time on that rate calculationdate, or as soon thereafter as practicable, but in no event later than9:00 a.m., on the business day following the rate calculation date.

(B) “KRW TELERATE 45644” or “KRW03” each mean that the spot rate fora rate calculation date will be the Korean won/U.S. dollar market averagetom rate, expressed as the amount of Korean won per one U.S. dollar, forsettlement in one business day reported by the Korea FinancialTelecommunications and Clearing Corporation, which appears on theTelerate Page 45644 to the right of the caption “USD Today” that is avail-able at approximately 5:30 p.m., Seoul time on that rate calculation date,or as soon thereafter as practicable, but in no event later than 9:00 a.m.,on the business day following the rate calculation date.

N


A N N O U N C E M E N T

June 20, 2001

P R A C T I T I O N E R ’ S N O T E S :� The Korean won rates reported by the Korea Financial Telecommunications

and Clearing Corporation are market average rates for value in one busi-ness day in the local market. The Korean Won rate source definitions havebeen amended to reflect this fact by adding the word “tom” to thedescription of the rate, and adding the words “for settlement in onebusiness day.” This does not affect the settlement convention in the non-deliverable markets, which continues to be two business days from thevaluation date.

� The Korean won rate source definitions provide for a KRW rate availabilitytime of “5:30 p.m., Seoul time, but no later than 9:00 a.m., on the busi-ness day following the rate calculation date.” Although the KFTC hasreported the KRW rate at the end of each business day for some time now,previously there was no end-of-day publication of the KRW rate. The KRWrate for a particular business day was published only at 9:00 a.m. on thenext business day (for example, “the business day following the rate cal-culation date”). Now, in light of the end-of-day availability of the KRWrate, market consensus is to reference the 5:30 p.m. time (on the rate cal-culation date), but to continue to maintain the reference to 9:00 a.m. (onthe next business day after the rate calculation date) as the final publica-tion time. The final publication time serves as a cut-off time for purposesof determining whether a settlement rate is available or whether a pricesource disruption has occurred. This approach also enables market partici-pants to take into account adjustments to the KRW rate made after the5:30 p.m. publication (with the addition of late-settling trades into themarket average). It also addresses the practical reality that, because theKRW rate is published so late in the day in Seoul, most traders do not con-sult the rate until 9:00 a.m. on the following business day.

� The Korea Financial Telecommunications and Clearing Corporation reportsthe KRW rate. However, the KRW rate is published on Reuters PageKFTC18, which is a page supplied by Seoul Money Brokerage Services, Ltd.

� Parties that specify in confirmations that a particular version of Annex Aapplies to their trades should reference Annex A effective as of June 20,2001, if they desire to incorporate the new Korean won rate source defini-tions into their trades. If parties do not specify in their confirmations aparticular version of Annex A, the above Korean won rate source defini-tions would apply to trades that incorporate the 1998 Foreign Exchangeand Currency Option Definitions and have a trade date on or afterJune 20, 2001.


A F E A S I B I L I T Y S T U DY R E C O M M E N D I N G T H E C R E A T I O N O F T H E F O R E I G NExchange Committee was conducted in June 1978. This document includes thestudy’s conclusions and has been periodically updated (most recently inJanuary 1997) to reflect the Committee’s evolution.

It was generally agreed that any new forum for discussing matters ofmutual concern in the foreign exchange market (and, where appropriate,offshore deposit markets) should be organized as an independent bodyunder the sponsorship of the Federal Reserve Bank of New York. Such aCommittee should:

1. be representative of institutions, rather than individuals, participating inthe market,

2. be composed of individuals with a broad knowledge of the foreign exchangemarket and in a position to speak for their respective institutions,

3. have sufficient stature in the market to engender respect for its views, eventhough the Committee would have no enforcement authority,

4. be constituted in such a manner as to ensure fair presentation and consider-ation of all points of view and interests in the market at all times, and

5. notwithstanding the need for representation of all interests, be small enoughto deal effectively with issues that come before this group.

C O M M I T T E E O B J E C T I V E S :● to provide a forum for discussing technical issues in the foreign exchange

and related international financial markets,

● to serve as a channel of communication between these markets and theFederal Reserve and, where appropriate, to other official institutions withinthe United States and abroad,

● to enhance knowledge and understanding of the foreign exchange and relat-ed international financial markets, in practice and in theory,

73

Document ofOrganization

● to foster improvements in thequality of risk management inthese markets,

● to develop recommendationsand prepare issue papers onspecific market-related topicsfor circulation to market parti-cipants and their management,and

● to work closely with theFinancial MarketsAssociation–USA and otherformally established organiza-tions representing relevantfinancial markets.

T H E C O M M I T T E EIn response to the results of thestudy, the Federal Reserve Bank ofNew York agreed to sponsor theestablishment of a ForeignExchange Committee. It wasagreed that

1. The Committee should consistof no more than thirty mem-bers. In addition, the presidentof the Financial MarketsAssociation–USA is invited toparticipate.

2. Institutions participating in theCommittee should be chosenin consideration of a) their par-ticipation in the foreignexchange market here, and b)the size and general impor-tance of the institution.Selection of participants shouldremain flexible to reflectchanges as they occur in theforeign exchange market.

3. Responsibility for choosingmember institutions rests withthe Federal Reserve Bank ofNew York. The Membership

Subcommittee, chaired by aFederal Reserve Bank official,advises the Federal Reserve onmembership issues.

4. The membership term is fourcalendar years. A member maybe re-nominated for additionalterms; however, an effort willbe made to maximize partici-pation in the Committee byinstitutions eligible for mem-bership.

5. Members are chosen withregard to the firm for whichthey work, their job responsi-bilities within that firm, theirmarket stature, and their on-going role in the market.

The composition of theCommittee should include New Yorkbanks; other U.S. banks; foreignbanks; investment banks and otherdealers; foreign exchange brokeragefirms (preferably to represent bothforeign exchange and Eurodepositmarkets); the president of theFinancial Markets Association–USA(ex officio); and the Federal ReserveBank of New York (ex officio).

C O M M I T T E E P R O C E D U R E SThe Committee will meet at leasteight times per year (that is,monthly, with the exception ofApril, July, August, and December).The meetings will follow a speci-fied agenda; the format of the dis-cussion, however, will be informal.

Members are expected toattend all meetings.

Any recommendation theCommittee wishes to make onmarket-related topics will be dis-cussed and decided upon only at

its meetings. Any recommendationor issue paper agreed to by theCommittee will be distributed notonly to member institutions, butalso to institutions that participatein the foreign exchange market.

The Membership Subcommitteewill be the Committee’s onestanding subcommittee. A repre-sentative of the Federal ReserveBank of New York will serve asChairman of the MembershipSubcommittee. The MembershipSubcommittee will aid in theselection and orientation of newmembers. Additional subcommit-tees composed of currentCommittee members may beorganized on an ad hoc basis inresponse to a particular need.

Standing working groups mayinclude an Operations ManagersWorking Group and a RiskManagers Working Group. Theworking groups will be composedof market participants with aninterest and expertise in projectsassigned by the Committee.

Committee members will bedesignated as working groupliaisons. The liaison’s role is prima-rily to provide guidance to theworking group members and fos-ter effective communicationbetween the working group andthe Committee. In addition, a rep-resentative of the Federal ReserveBank of New York will also beassigned as an advisor to eachworking group.

The Committee may designateadditional ad hoc working groupsto focus on specific issues.

Depending on the agenda ofitems to be discussed, the


Committee may choose to inviteother institutions to participate indiscussions and deliberations.

Summaries of discussions oftopics on the formal agenda ofCommittee meetings will be madeavailable to market participants bythe Federal Reserve Bank of NewYork on behalf of the Committee.The Committee will also publishan annual report, which will bedistributed widely to institutionsthat participate in the foreignexchange market.

Meetings of the Committee willbe held either at the FederalReserve Bank of New York or atother member institutions.

In addition to the meetings pro-vided for above, a meeting of theCommittee may be requested atany time by two or more members.

R E S P O N S I B I L I T I E SO F C O M M I T T E E M E M B E R SThe Foreign Exchange Committeeis composed of institutions thatparticipate actively in the foreignexchange markets as well as otherfinancial markets worldwide. As asenior officer of such an institu-tion, the Committee member hasacquired expertise that is invalu-able to attaining the Committee’sobjectives. The member’s continu-ous communication with the mar-kets worldwide generates infor-mation that is necessary to theCommittee’s deliberations on mar-ket issues or problems. Effectiveindividual participation is critical ifthe collective effort is to be suc-cessful. The responsibilities ofmembership apply equally to allCommittee members.

The specific responsibilities ofeach member are:

● to function as a communicatorto the Committee and to themarketplace on matters ofmutual interest, bringing issuesand information to theCommittee, to contribute todiscussion and research, and tosound out colleagues on issuesof concern to the Committee;

● to present the concerns of hisor her own institution to theCommittee; in addition, toreflect the concerns of a mar-ket professional as well as theconstituency from which his orher institution is drawn or theprofessional organization onwhich he or she serves; and

● to participate in Committeework and to volunteer theresources of his or herinstitution to support theCommittee’s projects andgeneral needs.

Document of Organization 75

Daniel AlmeidaManaging DirectorDeutsche Bank31 West 52nd StreetNew York, NY [email protected]: 1998-2001

Peter Bartko1

ChairmanEBS Partnership55-56 Lincoln’s Inn FieldsLondon, WC2 [email protected]: 2001-2004

Lloyd Blankfein2

Vice ChairmanGoldman Sachs85 Broad StreetNew York, NY [email protected]: 1999-2002

Mark DeGennaroManaging DirectorLehman Brothers745 7th Avenue, 4th FloorNew York, NY [email protected]: 2001-2004

James KempManaging DirectorCitigroup390 Greenwich Street, 5th FloorNew York, NY [email protected]: 2000-2003

John Key3

Managing DirectorMerrill Lynch25 Ropemaker StreetLondon EC2 [email protected]: 2000-2003

Adam Kreysar4

Managing DirectorUBS-Warburg100 Liverpool StreetLondon, EC2M [email protected]: 2000-2003

Howard Kurz5

Managing DirectorRBS-NatWest Global Financial Markets101 Park AvenueNew York, NY 10078Term: 1999-2002

Robert LoewyHead of Foreign ExchangeHSBC Bank PLCThames Exchange10 Queen Street PlaceLondon, EC4R [email protected]: 2000-2003

Richard MahoneyExecutive Vice PresidentBank of New York32 Old Slip, 15th FloorNew York, NY [email protected]: 2001-2004

Robert McKnew6

Managing DirectorBank of America1455 Market StreetCA5-701-05-17San Francisco, CA 94103Term: 1999-2002

Peter Mesrobian7

Senior Vice PresidentBank One1 Bank One PlazaMail Suite 0452Chicago, IL [email protected]: 1998-2001

77

Foreign ExchangeCommitteeMember List, 2001

1Resigned December 2001.2Resigned December 2001.3Resigned March 2001.4Resigned December 2001.5Resigned January 2001.6Retired February 2001.7Resigned December 2001.

John NelsonSenior Vice PresidentABN-AMRO181 West Madison StreetChicago, IL [email protected]: 2001-2004

Philip NewcombManaging DirectorMorgan Stanley 1585 BroadwayNew York, NY [email protected]: 2001-2004

David PuthManaging DirectorJPMorgan Chase 270 Park AvenueNew York, NY [email protected]: 2001-2004

Richard RuaSenior Vice PresidentMellon Bank1 Mellon Bank CenterPittsburgh, PA [email protected]: 2001-2004

Klaus SaidManaging DirectorCredit Suisse First Boston11 Madison AvenueNew York, NY [email protected]: 2001-2002

Mark SnyderExecutive Vice PresidentState Street Corporation225 Franklin StreetBoston, MA [email protected]: 1999-2002

Sue StoreyManaging DirectorCIBC World Markets161 Bay Street, BCE PlaceToronto, Ontario M5J [email protected]: 1999-2002

Jamie K . ThorsenExecutive Managing DirectorBank of Montreal115 South LaSalle Street, 15th Floor WestChicago, IL [email protected]: 1999-2002

Nobuyuki Uchida Deputy General Manager and TreasurerThe Bank of Tokyo-Mitsubishi1251 Avenue of the AmericasNew York, NY [email protected]: 2001-2004

Robert WhiteHead of Global MarketsStandard Chartered BankOne Evertrust Plaza Jersey City, [email protected]: 1998-2001

Michael WilliamsSenior Managing DirectorCantor Fitzgerald1000 Harbor BoulevardWeehawken, NJ [email protected]: 1999-2002

O B S E R V E R – T H E F I N A N C I A LM A R K E T S A S S O C I AT I O N – U S APeter WadkinsTullet and Tokyo Liberty80 Pine StreetNew York, NY [email protected]

F E D E R A L R E S E R V E B A N KO F N E W YO R K ( E X O F F I C I O )Peter R . Fisher*Executive Vice PresidentMarkets GroupFederal Reserve Bank of New York33 Liberty Street, 9th FloorNew York, NY [email protected]

Dino KosSenior Vice PresidentMarkets GroupFederal Reserve Bank of New York33 Liberty Street, 10th FloorNew York, NY [email protected]

Angela MeyerExecutive AssistantForeign Exchange CommitteeFederal Reserve Bank of New York33 Liberty Street, 9th FloorNew York, NY [email protected]

Debby PerelmuterSenior Vice PresidentFederal Reserve Bank of New York33 Liberty Street, 9th FloorNew York, NY [email protected]

C O U N S E LMichael NelsonLegal DepartmentFederal Reserve Bank of New York33 Liberty Street, 7th FloorNew York, NY [email protected]

Robert ToomeyLegal DepartmentFederal Reserve Bank of New York33 Liberty Street, 7th FloorNew York, NY [email protected]


*Nominated for the position of Under Secretary for Domestic Finance, Department of the Treasury in March 2001.

Beau CumminsManaging DirectorBank of America9 West 57th Street, 20th FloorNew York, NY [email protected]: 2002-2005

Stephen DesalvoManaging DirectorFleetBoston FinancialMADE 10012E, 100 Federal StreetBoston, MA [email protected]: 2002-2005

Mark DeGennaroManaging DirectorLehman Brothers745 7th Avenue, 4th Floor New York, NY [email protected]: 2001-2004

Peter C. GerhardManaging DirectorGoldman, Sachs85 Broad Street, 4th FloorNew York, NY [email protected]: 2002-2005

James KempManaging DirectorCitigroup390 Greenwich Street, 5th FloorNew York, NY [email protected]: 2000-2003

Rob LoewyHead of Foreign Exchange HSBC Bank PLC, Thames Exchange10 Queen Street PlaceLondon, EC4R [email protected]: 2000-2003

Richard MahoneyExecutive Vice PresidentBank of New York32 Old Slip, 15th FloorNew York, NY [email protected]: 2001-2003

John NelsonManaging Directorand Global Head of Foreign ExchangeABN-AMRO181 West Madison Street, Suite 3104Chicago, IL [email protected]: 2001-2004

Philip NewcombManaging DirectorMorgan Stanley 1585 Broadway, 4th FloorNew York, NY [email protected]: 2001-2004

David PuthManaging DirectorJPMorgan Chase270 Park AvenueNew York, NY [email protected]: 2001-2004

Richard RuaSenior Vice PresidentMellon Bank, N.A.1 Mellon Bank Center, Room 151-0400Pittsburgh, PA [email protected]: 2001-2004

Klaus SaidManaging DirectorCredit Suisse First Boston11 Madison Avenue, 4th FloorNew York, NY [email protected]: 2001-2002

Mark SnyderExecutive Vice PresidentState Street Corporation225 Franklin Street, 2nd Floor, MAO-4Boston MA [email protected]: 1999-2002

Sue StoreyManaging DirectorCIBC World Markets161 Bay St, BCE PlaceToronto, Ontario [email protected]: 1999-2002

Jamie ThorsenExecutive Managing DirectorBank of Montreal115 South LaSalle Street, 19th Floor WestChicago, IL [email protected]: 1999-2002

79

Foreign ExchangeCommitteeMember List, 2002

Jim TurleyGlobal Head of Foreign ExchangeDeutsche BankWinchester House,1 Great Winchester StreetLondon EC2N [email protected]: 2002-2005

Nobuyuki UchidaGeneral Manager and Treasurer The Bank of Tokyo-Mitsubishi1251 Avenue of the AmericasNew York, NY [email protected]: 2001-2004

John WarehamExecutive Vice PresidentAIG International9 Thomas More Square, Thomas More StreetLondon E1W [email protected]: 2002-2005

Robert WhiteHead of Global MarketsStandard Chartered BankOne Madison AvenueNew York, N.Y. [email protected]: 2002-2005

Michael WilliamsSenior Managing DirectorCantor Fitzgerald1000 Harbor Blvd, 8th FloorWeehawken, NJ [email protected]: 1999-2002

O B S E R V E R – T H E F I N A N C I A LM A R K E T S A S S O C I AT I O N – U S APeter WadkinsTullet and Tokyo Liberty80 Pine StreetNew York, NY [email protected]

F E D E R A L R E S E R V E B A N KO F N E W YO R K ( E X O F F I C I O )Dino KosExecutive Vice President, Markets GroupFederal Reserve Bank of New York33 Liberty Street, 10th FloorNew York, NY [email protected]

Angela MeyerExecutive AssistantFederal Reserve Bank of New York33 Liberty Street, 9th FloorNew York, NY [email protected]

Debby PerelmuterSenior Vice President, Markets Group,Federal Reserve Bank of New York33 Liberty Street, 9th FloorNew York, NY [email protected]

C O U N S E LMichael NelsonLegal DepartmentFederal Reserve Bank of New York33 Liberty Street, 7th FloorNew York, NY [email protected]

Robert ToomeyLegal DepartmentFederal Reserve Bank of New York33 Liberty Street, 7th FloorNew York, NY [email protected]


A M I C U S B R I E F S2001, page 121997, page 21996, page 3

A N N E X A2001, pages 9, 14, 67, 692000, pages 10, 14, 105

A R G E N T I N E P E S O2001, pages 9, 12, 14, 67

B A R R I E R O P T I O N S2001, pages 5, 9, 14, 67, 692000, pages 6, 10, 18, 591999, pages 7, 17, 731998, pages 8, 19

B A S E L C O M M I T T E E O N B A N K I N GS U P E R V I S I O N1999, pages 7, 13, 89

B R A Z I L I A N R E A L2000, page 1031999, page 95

B R I T I S H B A N K E R S ' A S S O C I AT I O N2001, page 142000, pages 13, 321999, pages 11, 13, 421998, pages 12, 151997, pages 5, 91996, page 3

C A N A D I A N F O R E I G N E X C H A N G EC O M M I T T E E2001, pages 62000, page 141999, pages 13, 42, 431998, page 161997, page 5

C L S2001, pages 7, 9, 12, 14, 19, 612000, pages 7, 10, 171999, pages 6, 16, 171998, pages 5, 8, 181997, page 4

C O L L AT E R A L A N N E X2000, pages 10, 311999, page 12

C O N T I N G E N C Y P L A N N I N G 2001, pages 6, 12, 19, 45

C O N T R A C T S F O R D I F F E R E N C E S( C F D S )2000, page 81999, pages 6, 161998, pages 5, 8, 18, 471997, pages 4, 13

C R O S S - P R O D U C T A G R E E M E N T2000, pages 10, 471999, page 121998, page 111997, page 5

D O C U M E N T O F O R G A N I Z AT I O N2001, page 732000, page 1111999, page 991998, page 591997, page 691996, page 101

E - C O M M E R C E2001, pages 7, 9, 19, 412000, pages 5, 171999, pages 9, 12, 18

E L E C T R O N I C B R O K E R I N G1998, page 231997, pages 13, 351996, page 3

E M E R G I N G M A R K E T S T R A D E R SA S S O C I AT I O N ( E M TA )2001, pages 9, 12, 14, 20, 67, 692000, pages 10, 14, 103, 1051999, pages 7, 11, 42, 59, 951998, pages 7, 11, 13, 151997, pages 3, 5, 71996, page 3

E U R O P E A N E C O N O M I C A N DM O N E TA RY U N I O N ( E M U )2000, page 111999, page 51998, pages 3, 11, 12, 17, 33, 65, 731997, pages 5, 9, 141996, page 3

F I N A N C I A L M A R K E T S A S S O C I AT I O N -U S A2001, pages 14, 742000, page 13

F O R C E M A J E U R E P R OV I S I O N S1999, pages 7, 11, 13, 16, 591998, pages 8, 121997, page 58

F O R E I G N E X C H A N G E T R A N S A C T I O NP R O C E S S I N G1999, pages 8, 49

F X A N D C U R R E N C Y O P T I O ND E F I N I T I O N S2001, pages 8, 312000, pages 10, 1031999, pages 66, 951998, pages 11, 131997, pages 5, 53

81

Index to 1996-2001Annual Reports

G U I D E L I N E S F O R F O R E I G NE X C H A N G E S E T T L E M E N T N E T T I N G2001, pages 7, 8, 31, 35, 461996, page 63

G U I D E L I N E S F O R F O R E I G NE X C H A N G E T R A D I N G A C T I V I T I E S2001, pages 7, 8, 31, 35, 462000, pages 5, 6, 17, 691999, page 181996, page 17

H A G U E C O N V E N T I O N2001, page 12

H O N G K O N G F O R E I G N E X C H A N G EA N D M O N E Y M A R K E T P R A C T I C E SC O M M I T T E E2001, page 14

G U I D E L I N E S F O R T R A N S A C T I O N SI N VO LV I N G I N T E R M E D I A R I E S1998, page 12

I M P L I E D VO L AT I L I T Y R AT E SF O R F X O P T I O N S2000, pages 7, 107

I N D O N E S I A N R U P I A H2001, pages 8, 15, 17, 38, 631998, pages 6, 12, 79

I N T E R N AT I O N A L C U R R E N C YO P T I O N S M A R K E T M A S T E RA G R E E M E N T ( I C O M )2000, page 321999, pages 12, 59, 70, 951998, page 121997, page 51996, page 1

I N T E R N AT I O N A L F O R E I G NE X C H A N G E A N D O P T I O N S M A S T E RA G R E E M E N T ( F E O M A )2000, page 321999, pages 12, 59, 70, 951998, page 121997, page 51996, page 3

I N T E R N AT I O N A L F O R E I G NE X C H A N G E M A S T E RA G R E E M E N T ( I F E M A )2000, pages 10, 321999, pages 12, 44, 59, 70, 951998, page 121997, page 5

I N T E R N AT I O N A L S WA P S A N DD E R I VAT I V E S A S S O C I AT I O N ( I S DA )2001, pages 9, 12, 14, 67, 692000, pages 13, 103, 1051999, pages 7, 11, 42, 59, 951998, pages 6, 11, 44, 811997, pages 5, 71996, page 3

K O R E A N W O N2001, pages 9, 14, 69, 70

L E G A L O P I N I O N S2001, page 122000, page 111999, page 121998, page 111997, page 3

M A L AY S I A N R I N G G I T1998, pages 6, 79

M A N A G I N G O P E R AT I O N A L R I S K I N C O L L AT E R A L I Z E D F O R E I G NE X C H A N G E2001, page 191997, page 21

M A N A G E M E N T O F O P E R AT I O N A LR I S K S I N F O R E I G N E X C H A N G E1996, page 33

M A R K E T D I S R U P T I O N S2001, pages 7, 8, 12, 19, 37

M A R K E T VO L AT I L I T Y 2001, pages 6, 35

N O N D E L I V E R A B L E F O R WA R D S( N D F S )2001, pages 9, 12, 14, 20, 672000, pages 10, 171999, page 171998, pages 7, 131997, pages 5, 7, 551996, page 3

R E G U L AT O RY I S S U E S2000, pages 9, 93, 95, 971999, pages 8, 12, 15, 29, 35, 771998, pages 4, 11, 12, 17, 671997, pages 2, 5, 61996, page 3

R U S S I A N R U B L E1998, pages 6, 81

S E C U R I T I E S I N D U S T RY A S S O C I AT I O N( S I A )2001, pages 9, 14, 202000, pages 14, 18

S E M I N A R S1998, pages 3, 171997, page 31996, page 4

S I N G A P O R E F O R E I G N E X C H A N G EM A R K E T C O M M I T T E E2001, pages 5, 6, 8, 14, 20, 24, 47, 59,63, 652000, pages 8, 131999, pages 9, 13, 431998, pages 3, 7, 8, 15, 751997, pages 1, 17

S TA N D I N G S E T T L E M E N TI N S T R U C T I O N S2001, page 421998, pages 4, 73

S T O P - L O S S L I M I T O R D E R S2001, pages 8, 311997, page 67

S U R V E Y A S S E S S I N G T H E I M PA C TO F E L E C T R O N I C B R O K E R I N G O N T H EF O R E I G N E X C H A N G E M A R K E T1997, page 35

S W I F T2001, pages 8, 592000, pages 6, 99

TA I WA N D O L L A R 2001, pages 8, 15, 47, 65

" T + 1 "2001, pages 9, 14, 202000, pages 14, 181999, page 17

T O K YO F O R E I G N E X C H A N G E M A R K E TP R A C T I C E S C O M M I T T E E2001, pages 14, 15, 202000, pages 14, 321999, pages 13, 421997, page 5

T R A D I N G U N D E R O N E L E G A L- E N T I T YN A M E2000, pages 8, 27

T R I E N N I A L S U R V E Y2001, pages 7, 51(see U.S. Foreign Exchange TriennialSurvey)


U . K . J O I N T S TA N D I N G C O M M I T T E E2000, page 141999, pages 13, 14, 421998, page 16

U . S . F O R E I G N E X C H A N G E M A R K E TT R I E N N I A L S U R V E Y2001, pages 7, 511998, pages 4, 53

Y 2 K1999, pages 5, 12, 13, 41, 871998, pages 7, 8, 16, 18, 19, 75

Index to 1996-2001 Annual Reports 83

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