CPMI calls for ideas on ways to expand PvP settlement

CPMI calls for ideas on ways to expand PvP settlement

Source: Bank for International Settlements

Settling FX trades can lead to significant principal risk exposures when one counterparty to a trade sends a currency payment to the other counterparty before receiving the currency it is buying.

Payment-versus-payment (PvP) mechanisms, which ensure that the final transfer of a payment in one currency occurs if and only if the final transfer of a payment in another currency or currencies takes place, can significantly mitigate principal risk.

The 2019 BIS Triennial FX survey (Triennial) shows that FX settlement risk remains significant: with the proportion of total trades settled globally with PvP protection estimated to be below 40%. Expanding PvP settlement to a wider range of transactions would reduce FX settlement risk, support global financial stability and potentially help to lower the costs of cross-border payments that involve currency exchange.

As part of the G20 cross-border payments roadmap, the Committee on Payments and Market Infrastructures (CPMI) is developing proposals for increased PvP adoption