The FX Global Code is in many ways as “strong as any rule, any regulation or frankly any law could put in place”, David Puth, chair of the Market Participants Group and CEO of CLS, claims.
Speaking to Profit & Loss on the sidelines of a press conference to launch the complete FX Global Code, Puth addressed the key question of just how much teeth an essentially voluntary set of principles can have, noting that while it may not stop misconduct it sets a very high standard of expected behaviour.
Today marks the release of the FX Global Code of Conduct - a much anticipated event in the foreign exchange industry. Here is the reaction of senior figures within the industry. Chip Lowry, chair, FXPA: “The FXPA endorses the Global Code and its stated aim to promote a robust, fair, liquid, open and transparent market, which is very much in line with FXPA’s own principles. We recommend that our members demonstrate their commitment to adopting the good practices set forth in the Code. FXPA commends the global coordination and work of the BIS’s Foreign Exchange Working Group in strengthening global standards for those operating in the FX market. We fully support the adoption of its principles.”
In addition to the Code, central bank governors under the auspices of the Bank for International Settlements have formally announced the formation of a Global FX Committee (GFXC), with the Bank of England’s head of markets, Chris Salmon, at the helm.
One of the core objectives of the GFXC will be to promote and maintain the FX Global Code by ensuring that the guidance set out remains relevant and taking into account good practices for supporting adherence. It will seek to promote collaboration and communication among local foreign exchange committees and other jurisdictions with significant FX markets.
The Bank for International Settlements’ (BIS) FX Working Group formally launched the full version of the FX Global Code of Conduct today in London, following the release of stage one in New York last year.
The Code contains 55 principles covering areas including ethics, transparency, governance and information-sharing. It also tackles complex topics such as electronic trading, algorithmic trading and prime brokerage.
“All of us recognise the need to restore the public’s faith in the foreign exchange market. We share the view that the Global Code plays an important role in assisting that process and also in helping improve market functioning,” says Reserve Bank of Australia deputy governor Guy Debelle, who chaired the FXWG.
Along with today’s launch of the full Code, the FX Working Group (FXWG) has also published its Blueprint for Achieving Adoption, in which it lays out four key tenets. These are that the Code should be clear, relevant and reflect good practice in the FX Market; it is the responsibility of market participants to take appropriate steps to adopt the Code in their day-to-day practices and culture; it is the role of central banks to lead by example and demonstrate their commitment to promoting and maintaining good market practice; and it is important that market participants and central banks maintain an active engagement with the Code and have appropriate structures in place to ensure that it remains relevant.
If there is one subject upon which I have expounded a lot on recent months it is the FX Global Code of Conduct, so let’s keep this relatively brief.
Today has the potential to be a landmark day in the FX industry – a moment when it passes from being an unregulated market with what we now know were obvious cultural problems stemming from the technological revolution, to an unregulated market in which everyone knows the definition of bad practice in the context of a predominantly electronic market.
Fund management institutions can now access the CLS system in Korea for the first time via CLS third-party service provider, HSBC.
This announcement builds on the earlier adoption of CLS participation in Korea by other non-bank financial institutions (NBFIs), including a number of leading securities brokers. Third-party participation globally accounts for approximately 22% of the total value settled in CLS and there was a 12% increase in the number of third-party participants using the service in the Asia Pacific region in 2016.
The financial markets industry has another code of conduct to confirm with after the Bank of England released its new, voluntary, UK Money Markets Code, which sets out the standards and best practice expected from participants in the deposit, repo and securities lending markets.
The Code is underpinned by the key principle that participants should always act in a manner to promote the integrity and effective functioning of these markets. It also outlines six high-level principles encompassing: ethics, governance, risk management, confidentiality, execution and settlement.
London remains the dominant offshore centre for RMB FX trading and payments according to the latest RMB Tracker from Swift.
The Swift report focuses on the City of London as an offshore RMB hub and includes statistics and analysis for the first three months of the year as well as insights about the RMB and the state of play in London’s FX market.
As of March 2017, Swift’s data shows that 36.3% of the RMB FX transactions (excluding China) are conducted with the UK.
The average daily traded volume (ADV) submitted to CLS was $1.6 trillion in March, up 6.7% from February. This figure also represents a 9.6% increase from the $1.46 trillion ADV recorded for the same period a year ago.
At $462 billion in ADV, spot volumes were up 8.1% month-on-month, but down 1.3% year-on-year for March.
In contrast, swap volumes in March reached $1.04 trillion ADV, a 14% increase from the year before and a 6.2% increase from February.
Meanwhile forward volumes, at an ADV of $95 billion, were up 3.3% month-on-month and up 17.3% year-on-year, in March.