Managing Liquidity

The page relates only to third-party FX Providers.

For Source PSPs that provide their own FX, a different process applies. See Payment setup for PSPs who provide their own FX for details.

Minimum liquidity requirements per IPS

FX Providers are responsible for managing their liquidity in various IPSs to ensure that payments from their Destination SAP (or from their own Destination IPS account if they are a member) can always be made.

• Nexus informs FXPs whenever a payment is successfully processed against their quote. (See Notifying FXPs of completed payments.)

• It is the FXP's responsibility to ensure it manages its liquidity so that it is always able to process payments.

• Nexus assumes that FXPs who have active rates hold sufficient funds to honour payments in either direction.

An FXP may be penalised if payments against their quotes fail because of a lack of liquidity in their account at an SAP (or their IPS settlement account, if they are a member of the IPS). (A Destination SAP is likely to check the balance of the FXP’s account before approving or reject payments that reference the FXP’s quote.)

Providing rates and managing liquidity when FX markets are closed

IPSs allow payments to be made 24 hours per day, seven days per week. In contrast, FX markets, where financial institutions buy and sell currencies from each other, are only open during business hours from Monday-Friday. Because of the global nature of FX markets, it is usually possible to trade major currencies for 24 hours a day from Monday morning in Sydney to Friday afternoon in New York, but not over the weekend. This means that there is no “live” market to define FX rates on Saturday and Sunday.

To enable Nexus payments at weekends, FX Providers should continue to provide FX over the weekend. There are two ways they could do this:

• An FXP may update their rates when the FX markets close on Friday, and leave those rates fixed throughout the weekend, since the market rates will not change. In this case, they would “price in” the risk that the rates in the wider FX market on Monday morning may jump relative to the rates when the market closed on Friday evening. This means that the rates charged over the weekend are likely to be less competitive than those during the week, to cover this risk.

• Alternatively, the FXP could continue to update its rates through the weekend. Although the market rates would not change, an FXP may wish to do this to manage their liquidity in the different currencies. For example, they may make their rates better or worse, compared to other FX Providers, in order to attract more or less of certain currencies.

Each FXP must also ensure they have the liquidity to meet expected payment flows over the weekend. This may require active or automated management of the level of funding in their accounts. The FXP could also actively or automatically alter the rates they offer to alter the flow of payments that the FXP is selected for; this will have an impact on how their holdings of each currency increase or decrease. This is a matter for each FXP to manage individually.

Providing rates and managing liquidity outside the FXP’s business hours

Even though FX markets are open 24 hours per day Monday-Friday, not all FX Providers will be global firms that can operate 24 hours per day. Nexus expects FXPs to operate 24/7, meaning that the FXP should develop a strategy for managing their rates and liquidity outside of their core business hours.

Exceptions may be made to the 24/7 requirement for FXPs who are smaller institutions without the capacity to operate outside of their business hours. These exceptions may be time limited with the expectation that the FXP will eventually build the necessary capacity to provide FX to Nexus on a 24/7 basis.