The midweek column triggered quite a bit of feedback, the majority of it questioning where I got my 80% number from in terms of the major market participants that had signed a Statement of Commitment (SoC) to the FX Global Code.
Obviously given I was told the number in confidence I can’t say where it came from, but I would also note, I wrote that I had “been told” – i.e., it was unverifiable. The scepticism over that ratio is why I have rapidly come to the conclusion that we need to sort out the Global Code register issue sooner rather than later.
Partly I suspect the 80% number comes from a narrow definition of “major” market participants, after all, given it is a prerequisite that a firm sitting on one of the world’s FX committees has signed an SoC, that will take care of a lot of the major participants – if not all of them.
The feedback also signals to me that I am not the only one struggling to work out who has – and who hasn’t – signed a SoC, because not only are there diverse registers, but it is not compulsory to submit a document to a register. It should be, however, for this is an issue of trust and transparency – the bedrock of the Global Code.
To repeat myself from Thursday, we need to know who has not signed the Code – the Global FXC is rightly undertaking a huge outreach exercise to reach those players who haven’t engaged with the Code, the industry could help, if only it knew who those firms were!
As things stand, there are a host of market participants who would be more than willing to help (it would give them some comfort after all to know their counterparty backs the Code), but they can’t, because we don’t have total transparency on this issue.
I cannot stress enough the need to create an effective market for everyone – and that means more transparency of action rather than transparency of price or order. Central to creating that effective market is a single register of firms that have signed an SoC, as well as compulsory publishing of the disclosures to that register.
On a related topic, a few people got in touch (some in predictable outrage), to chat about Royal Bank of Canada’s latest FICC disclosure document, specifically (and inevitably) its declaration on last look.
The bank says all trades are subject to last look with a hold time of between 0 and 100ms and this appeared to upset some people, although I’m not sure why because all the bank is doing is formalising something we already know. This disclosure is a fraction different from some others in that it actually gives a time window for the last look but overall it’s a standard, boilerplate, response from a bank that says, “Your trade may be subject to last look for a variety of reasons, to be determined by us.”
I don’t like last look – that is well-documented – but it exists and isn’t going away, therefore we have to raise transparency levels around it. This means, as I have stated before, better explanations of why a trade has been rejected, so at least the customer knows it’s because there was unexpected latency in the system, or they’re a sniper, or the LP is a shyster – it could be any of the above!
Either way the parties would at least have a better understanding of each other and their respective tolerances, but to do this requires better disclosure.
There are many that believe (or hope rather) that last look will just fade away as an issue and it may do so. The only way to guarantee it becomes less of an issue, however, is greater transparency of action – but it is hard to see the industry achieving that when it hides behind “adequate disclosure” and struggles to deliver a coherent message on the crucial disclosure document that is the foundation stone of its rebuilding efforts.