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 in which all of the decisions related to the transaction — usually on a transaction by transaction basis — are 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?

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.  Clients and their investment managers also find BNY Mellon’s standing instruction service to be an attractive option for small, “retail” size transactions, which can be administratively burdensome to handle.

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. BNY Mellon has added to its traditional foreign exchange trading product line a new defined spread standing instruction product that offers:

  • Pricing based upon rates captured multiple times per day in developed markets and rates captured/calculated once per day in emerging markets, plus or minus a fixed spread.
  • 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.  Trades in the same currency pair that are priced by the same pricing location on the same business day and within the same collection cycle receive the same base rate.  Netting occurs at the legal entity level for accounts identified by the client, and defaults to the account level without client direction.

BNY Mellon has also upgraded its Session Range standing instruction product.  The upgrades include automated pricing pursuant to pre-defined rules and enhanced post-trade reporting.

  • Trades are priced once per day within the interbank range of the day with a price collar. 
  • Pricing is specific to session, pricing location and currency pair.
  • Post-transaction reporting includes the applicable session high/low rates, forward points, and contract rate.
  • Like Defined Spread, Session Range offers trade aggregation and price netting, subject to market and program parameters.  Trades in the same currency pair that are priced by the same pricing location on the same business day and within the same session receive the same base rate.   Netting occurs at the legal entity level for accounts identified by the client, and defaults to the account level without client direction.

The details of the pricing rules used for the Defined Spread and the Upgraded Session Range products are set forth in their respective disclosure documentation, which is available to clients and their investment managers.   

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. For clients that 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.  We also offer detailed post-trade reporting.

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?

Today, pricing practices differ across the two standing instruction pricing options.

  • For clients or investment managers that have selected the Defined Spread standing instruction product, BNY Mellon assigns prices based on a pre-defined spread over rates obtained from an objective market source or a BNY Mellon reference rate, plus or minus a fixed spread.  In developed market currencies, BNY Mellon assigns prices multiple times per day. 
  • For clients or investments managers that utilize the Upgraded Session Range product, BNY Mellon assigns prices once per day within the interbank range of the day, and subject to the application of a price collar. Pricing is specific to session, pricing location and currency pair.

The details of the pricing rules used for the Defined Spread and the Upgraded Session Range products are set forth in their respective disclosure documentation, which is available to clients and their investment managers. 

Under BNY Mellon’s historical session range standing instruction program, every morning our U.S. trading desks provided their standing instruction customers with a guaranteed range of bid and offer rates for more than 70 currency pairs. We guaranteed that the actual rate that we assigned on that day to a standing instruction order executed by BNY Mellon's U.S. trading desks would be within the published range. The price actually assigned to a particular currency trade was 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 agreed to a different pricing arrangement, BNY Mellon assigned prices to standing instruction transactions that were 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.

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.  These reports are available via Workbench, the BNY Mellon client reporting mechanism.

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. 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 their investment managers who made informed decisions about foreign exchange transactions.

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

Many clients have made it 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 and enhanced 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 it is meeting client demand and positioning its clients well to navigate an increasingly complex financial environment. BNY Mellon has added to its existing foreign exchange trading product line a new defined spread standing instruction product that offers:

  • Pricing based upon rates captured multiple times per day in developed markets and rates captured/calculated once per day in emerging markets, plus or minus a fixed spread.
  • 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.  Trades in the same currency pair that are priced by the same pricing location on the same business day and within the same collection cycle receive the same base rate.  Netting occurs at the legal entity level for accounts identified by the client, and defaults to the account level without client direction.

BNY Mellon has also upgraded its Session Range standing instruction product.  The upgrades include automated pricing pursuant to pre-defined rules and enhanced post-trade reporting.

  • Trades are priced once per day within the interbank range of the day with a price collar. 
  • Pricing is specific to session, pricing location and currency pair.
  • Post-transaction reporting includes the applicable session high/low rates, forward points, and contract rate.
  • Like Defined Spread, Session Range offers trade aggregation and price netting, subject to market and program parameters.  Trades in the same currency pair that are priced by the same pricing location on the same business day and within the same session receive the same base rate.   Netting occurs at the legal entity level for accounts identified by the client, and defaults to the account level without client direction.

The details of the pricing rules used for the Defined Spread and the Upgraded Session Range products are set forth in their respective disclosure documentation, which is available to clients and their investment managers.   

What is the status of the lawsuits against BNY Mellon?

BNY Mellon has resolved substantially all of the foreign exchange-related actions that were pending against the company.  A summary of the settlements can be found in the March 19, 2015 8-K filing and press release.