FX Global Code Reaches First Anniversary
The FX Global Code was published in May last year to reform foreign exchange markets and participants are waiting for the outcome of three working groups reviewing last look, anonymous trading and cover-and-deal to see how the guidelines will evolve.
The Investment Association, the trade body representing 240 UK investment managers with more than £6.9 ($9.2) trillion of assets under management, said:
We are marking the 1st anniversary of the #FX Global Code by publishing a summary of its main principles: https://t.co/k3ixYRswP9. As a strong supporter of the Code we look forward to more market participants signing up to its valuable principles #Assetmanagement
— The Investment Association (@InvAssoc) May 25, 2018
A working group of central banks from 16 jurisdictions was set up to devise a code after scandals in the market led to billions of dollars in regulatory fines. They worked with a group of market participants from the sellside, buyside, and FX infrastructure providers to help develop the code over two years.
The main principles of the code provide guidance for best practice with regards to ethics; governance; execution; information sharing, risk management and compliance; and confirmation and settlement.
Roger Rutherford, chief operating officer of ParFX, the wholesale electronic spot foreign exchange trading platform, told Markets Media there was general agreement across the FX market that something needed to be done with regard to ethics.
He added: “The alternative could have been more regulation which takes time and introduces further costs to the industry. So whilst the market is adjusting to MiFID II, a code of conduct is a better way to bring ethics back into the FX marketplace.”
Last month the Global Foreign Exchange Committee (GFXC) said more than 100 market participants have made public statements of commitment to the code, which can be found on eight separate public registers that have been established. The GFXC is developing a centralised global index of registers which is expected to launch before the committee’s next meeting next month.
David Puth, chief executive at CLS and vice chair of GFXC, said in an email: “We are pleased with the level of adoption of the FX Global Code, which is widely recognized as critically important to the integrity and effective functioning of one of the world’s most important financial markets. Adoption will enable further market growth as it should provide greater confidence to a wider number of market participants that the industry is upholding the highest ethical standards and best practices, hence driving broader participation in the FX market.”
For example, this month the Bank for International Settlements signed up to the code. The BIS said in a statement: “To this end, the institution has taken appropriate steps, based on the size and complexity of its activities, and the nature of its engagement in the FX Market, to align its activities with the principles of the code.”
Kurt vom Scheidt, global head of foreign exchange at Saxo Capital Markets, said in an email: “We appreciate steps taken by central banks in terms of restricting trading counterparties and participation in their FX committees based on a criteria that those institutions have signed the statement of commitment. Saxo appears to be the only market participant in the retail segment of the FX market to have committed thus far.”
Rutherford continued that ParFX has spoken a lot about being differentiated, operating a fair and equal platform for all, and was one of the first to sign the code. “The response from customers and founders has been excellent and very supportive of our cause,” he said.
He added that the one-year anniversary of the code is a milestone and an opportunity to look back and reflect on the progress made over the past year, but the process is not over and there is more to do.
“There are three working groups on last look, anonymous trading and cover-and-deal, and they have not reported their findings yet,” said Rutherford. “The market is interested to hear the outcome and the direction it will take the code in next.”
Algorithms have become more prevalent in the spot FX market.
Global Foreign Exchange Committee has made recommendations on Last Look.
There is a growing demand for transparency in FX trading by regulators.
CLS has also enhanced its existing suite of alternative FX data products.
FX Global Code sets out good practice for last look and provides illustrative examples.