FX Settlement, Operations, and Documentation
Settlement mechanics and documentation
FX settlement moves principal between counterparties. Operations must confirm trade details, agree settlement instructions and ensure both currency legs settle on the correct value date. CLS settles eligible trades on a payment-versus-payment basis and reduces Herstatt risk, the risk that one leg pays and the other does not.
- Value dates: spot is normally T+2; forwards use the agreed date. If a currency holiday falls on the value date, settlement moves to the next common business day.
- Confirmations: match trade date, value date, currencies, amounts, rate and settlement instructions.
- SSIs: standard settlement instructions must be verified and updated; wrong SSIs cause failed payments.
- Documentation: ISDA Master Agreements, credit support annexes and trade confirmations govern derivatives; confirmations should be checked against the economic terms.
- SWIFT: MT300 confirms FX trades; MT202 moves funds.
Worked example
A spot USD/JPY trade is executed on Wednesday. Standard spot is T+2, so the value date is Friday. If Friday is a JPY holiday, settlement moves to the next common business day, Monday, assuming no USD holiday. Operations must check both currency calendars. If the trade were a forward, the same holiday logic applies to the forward date, not automatically to the spot date.
Traps
- Counting calendar days instead of business days.
- Checking only one currency's holiday calendar.
- Ignoring confirmation mismatches in amount or value date.
- Overlooking Herstatt risk when no payment-versus-payment mechanism is used.