Banks and liquidity providers need to map out standardised reject codes to asset managers by Q3 2021, with full implementation in H1 2022, investment managers have called for today. Standardised reject codes help ensure that the rationale for a trade being rejected is well understood, in order to protect investors and ensure they aren’t exposed to undue market risk.

Today we published a position paper calling for banks and liquidity providers to map out standardised reject codes to asset managers. To find out why this is an urgent move to better protect investors, view the full document on our website: https://t.co/eLRCI9OvRI pic.twitter.com/BcMNglvprP

— The Investment Association (@InvAssoc) August 18, 2021

A trade can get rejected for a variety of reasons, and if not executed, investment managers must be able to clearly understand why a trade has not proceeded, which is why the shorthand identifier, or reject code, is of vital importance. The FX market still has no standardisation of reject codes, which means each liquidity provider is able to provide their own set of idiosyncratic reject codes in heavily varying numbers and levels of granularity.

Earlier this year, the IA asked for progress on standardisation to be well in train by the end of 2020. Although the impact of the COVID-19 pandemic has inevitably slowed progress, the IA has also seen a reluctance on the part of many banks to fully get the process going, and ultimately little advancement has been made.

Galina Dimitrova, Director of Investment and Capital Markets at The Investment Association, said: “It is imperative that asset managers are able to analyse trade rejections efficiently in order to best serve their clients. The current lack of consistency in the categorisation of these codes remain a significant barrier. We welcome the updated FX Global Code principles which echoes our call for greater transparency around the use of reject codes and collaboration between liquidity providers and investment managers to create a system that will better serve end investors.”

Hugo Gordon, Policy Specialist, Capital Markets at The Investment Association, added: “It is evident that in order to protect investors, a new approach is needed urgently. We will continue to liaise with banks and liquidity providers on the importance of this matter and work with them to ensure that the standardisation of reject codes is clearly mapped out.”

Source: IA