We will take a quick break from the Fix – even though the debate continues apace – to look at something else that got my attention over the past week, something from our Frankfurt Dial-in-Day last week.
I have always advocated for the FX industry to have leadership, preferably consensus-led, that allows it to engage with regulators, media and, of course, other associations. A big factor in this is thought-leadership – a body that will actually undertake work to study and debate the difficult issues in our markets – we can all chat about what’s great, but as I have found over the years, there is an unwillingness to engage on the part of several stakeholders when the subject matter is tricky.
In the deep and distant past this leadership was provided by ACI which, in the 1970s and 80s especially was seen as the body for the foreign exchange industry. That position, for various reasons, dwindled and then faded away and a vacuum was created.
There are plenty of associations in FX markets of course, but to my mind their impact has been modest at best, non-existent at worst. The benchmark for how I judge associations is when the smelly stuff hits the fan – what do they do? On one hand they can, as ACI did to its eternal credit in the Mark Johnson case, try to actually do something to influence the decision makers, or the other they can shuffle uncomfortably in the corner in which they no doubt belong, wringing their hands in agony, whilst hoping the issue goes away so they don’t have to do anything.
Which brings me to what grabbed my attention last week during the Dial-in Day. During the session on the FX Global Code, it was revealed that the Global FX Committee had decided to stop going around in circles (my paraphrasing) on the tricky issues such as last look and pre-hedging, and instead try to tackle the issues through white papers and, if necessary, appendices.
Obviously, part of the rationale is the understandable desire to avoid (an unnecessary) re-writing of the Code, but to me this indicates the GFXC is willing to embrace a leadership role. It would have been easy to simply state, ‘we have consulted and nothing really needed changing’, because even opponents of how last look is used, including yours truly, accept it’s not going away.
Instead the work will continue, in a slightly different vein it seems, which can only be a good thing, because without continued debate and a constant appraisal of the Code, raising awareness further becomes very difficult. By embracing white papers and appendices to the Code, the GFXC is also ensuring that the document doesn’t turn into a MiFID II-type nightmare of thousands of pages, several of which potentially contradict each other.
If we have learnt one thing from the first three years of the Code it is that there are areas in foreign exchange that are complex, and which come with emotional baggage. It would have been the easy route to metaphorically shrug the shoulders and maintain the unsatisfactory status quo (as well as let the industry creep quietly towards its next crisis), instead the nettle is still firmly grasped.
My sense, coming away from that panel session, was that the GFXC is edging towards filling that leadership vacuum in the FX industry. That can only be a good thing for the industry, although it is to be hoped that the GFXC does not shy away from being controversial, because that is always part of the solution to tricky problems. Of course, in reality, if the subject matter is last look it’s going to be hard not to be so!