Questions & Answers

What are the different types of foreign exchange transactions your custody clients can enter into?

Generally speaking, custody clients have three ways to enter into FX transactions: directly negotiated trading with BNY Mellon, BNY Mellon's standing instruction program, or transactions with third party providers.

Directly negotiated trading generally refers to orders entered by the client or the client's investment manager with all of the decisions related to the transaction — usually on a transaction by transaction basis — made by the client or the investment manager. The preponderance of the notional value of BNY Mellon's trading volume with clients is negotiated.


Why would clients use standing instruction?

BNY Mellon's traditional standing instruction service offers clients with small trades — e.g., those that are not large enough to meet the $1 million minimum for the "wholesale" interbank market — prices that are more attractive than they typically otherwise could get for these "retail" size trades. The standing instruction service allows clients and their investment managers to outsource the costs, risks and management of certain FX transactions to BNY Mellon. Some clients find it particularly valuable to use this service for difficult-to-execute, emerging market transactions since BNY Mellon will assume the risk of settling the transaction and the burden of complying with complex regulatory regimes.

BNY Mellon continues to evolve its product offerings to ensure that they are meeting client demand and best positioning clients to navigate an increasingly complex financial environment. Accordingly, BNY Mellon has added to its traditional foreign exchange trading product line a new defined spread standing instruction product that offers:

  • Pricing based on objective rate sources where applicable, captured periodically throughout the day
  • Daily, guaranteed rates that provide protection against extreme currency fluctuations
  • Post-transaction reporting that includes the time at which we capture each rate, if applicable
  • Trade aggregation and price netting, subject to market and program parameters


Who makes the decision to use the traditional standing instruction for a particular transaction?

Clients or their investment managers make this decision. We do not require clients and their investment managers to use the standing instruction process. They can — and frequently do — decide to conduct their FX transactions in other ways. In general, investment managers can choose to opt out if they want to pursue better rates through another alternative. If clients use the standing instruction service, we confirm the trade details the next day so that clients know the exact price they received for transactions that day.


How do prices assigned through BNY Mellon's traditional standing instruction program compare to prices for directly negotiated FX trades?

The pricing of standing instruction transactions is generally less favorable to clients than directly negotiated trades.


How do you determine the range of prices offered each day in the traditional standing instruction product? How do you determine the price each client and/or transaction receives within the published range?

Every morning our U.S. trading desks provide their standing instruction customers with a guaranteed range of bid and offer rates for more than 70 currency pairs. We guarantee that the actual rate that we assign on that day to a standing instruction order executed by BNY Mellon's U.S. trading desks will be within the published range. The price actually assigned to a particular currency trade is within that range and typically within the much narrower range based on the 'interbank' foreign exchange rates available to credit-worthy global financial institutions. Unless BNY Mellon and a client agree to a different pricing arrangement, BNY Mellon assigns prices to standing instruction transactions that are at or near the high end of the daily range of prices reported in the interbank market for client currency purchases from BNY Mellon, and at or near the low end of the daily range of prices reported in the interbank market for client currency sales to BNY Mellon.


Are traditional standing instruction transactions involving "restricted currencies" handled differently than transactions involving non-restricted currencies?

BNY Mellon prices trades in restricted currencies using the same process that it applies to trades in other markets. Every morning, we publish a guaranteed range of bid and offer rates, and rates assigned to client trades will be within the range of the daily guaranteed rates. The rates actually assigned, however, are typically within the much narrower daily range of 'interbank' foreign exchange rates available to credit-worthy global financial institutions. Unless BNY Mellon and a client agree to a different pricing arrangement, BNY Mellon assigns prices at or near the high end of the daily interbank range for client purchases of currency and at or near the low end of the daily interbank range for client sales of currency. Many restricted markets have pre-trade administration requirements, such as registration of trades with the Central Bank or payment of local taxes, which must be satisfied before trades in these markets may be executed.


How do you report the prices that clients receive on their traditional standing instruction transactions?

All clients have access to daily reports showing the actual rates applied to the prior day's transactions, so they can easily compare BNY Mellon's rates to industry benchmarks or other options in the market.


Does BNY Mellon have a fiduciary duty to provide foreign exchange services at cost?

No. Any fiduciary relationship that exists between BNY Mellon and our clients with respect to our core custodial services is contractually delineated and does not require us to provide FX services at cost. Further, our clients are aware that we act as a principal and counterparty when we execute FX transactions — purchasing currencies from and selling currencies to our clients — not as an agent or a fiduciary trading currency on their behalf.

In fact, it is investment managers, not BNY Mellon, who are the fiduciaries of our custody clients, and have full discretion to execute foreign exchange transactions on their behalf. We believe that it is fundamentally unfair to seek to hold BNY Mellon responsible for the decisions of clients and money managers who made informed decisions about foreign exchange.


Given the recent litigation, why is BNY Mellon continuing to offer its standing instruction program?

Many clients have made clear that standing instruction is a product they like, know how to use strategically and want to continue to leverage. In addition, the company has expanded its standing instruction product offerings to meet client demand.


Has BNY Mellon changed any of its product offerings as a result of the litigation?

BNY Mellon continues to evolve its product offerings to ensure that they are meeting client demand and best positioning clients to navigate an increasingly complex financial environment. Accordingly, BNY Mellon has added to its existing foreign exchange trading product line a new defined spread standing instruction product that offers:

  • Pricing based on objective rate sources where applicable, captured periodically throughout the day
  • Daily, guaranteed rates that provide protection against extreme currency fluctuations
  • Post-transaction reporting that includes the time at which we capture each rate, if applicable
  • Trade aggregation and price netting, subject to market and program parameters


What is the status of the lawsuits against BNY Mellon?

A summary of FX-related litigation can be found in BNY Mellon's 10-K, which can be found here. There have been several noteworthy actions or decisions. For example, on January 17, 2012, BNY Mellon and the United States Attorney for the Southern District of New York entered into a partial settlement of the civil lawsuit against the company.

In addition, BNY Mellon has received favorable and noteworthy rulings in Virginia and California. In the Virginia case, the Court dismissed the entire case against BNY Mellon, which consisted of claims under Virginia's version of the False Claims Act, or "whistleblower" claims against the company. Following the dismissal, the Virginia Attorney General's office formally withdrew its motion to file an amended complaint, effectively ending its lawsuit with BNY Mellon. In the California case, the Court dismissed the California False Claims Act claims against the company. In deciding that the plaintiffs lacked a credible legal basis to pursue these claims, the Court eliminated the plaintiffs' ability to seek any significant financial penalties. Certain plaintiffs have filed an amended complaint in the case, which BNY Mellon has asked the court to dismiss.