The Global Foreign Exchange Committee (GFXC) has released a paper on the role of disclosure and transparency in FX markets intended to serve as a source of information for market participants seeking to learn about, develop and navigate the FX disclosure landscape. The paper is the work of a special working group set up by the GFXC to study the issue after feedback on last look practices highlighted concerns amongst participants that disclosures and transparency levels could be enhanced.
Although the feedback mostly focused on anonymous e-trading platforms, the report does not focus heavily on those venues as it is the result of a first stream of work offering observations on areas for improvement around the accessibility, clarity, maintenance and content of disclosures by individual market participants. The GFXC says the working group has developed “a list of characteristics as a voluntary tool to strengthen the disclosure landscape by increasing awareness and dialogue between market participants around business practices, supporting the integrity and functioning of the FX market and, in so doing, supporting the effective implementation of the FX Global Code.”
The GFXC adds that during its work, the group was “vigilant” on the several “important considerations”. First, that most FX transactions are commercial in nature and market participants would need to pursue this work in a way that remains sensitive to such considerations and in a manner consistent with the GFXC’s competition guidelines. Second, the principle of proportionality discussed in the FX Global Code has relevance to disclosures as the approach by different market participants to disclosures will reflect the size and complexity of the participant’s FX market activities, and the nature of the its engagement in the market. Third, that some disclosures as well as their format are mandated by law or other requirements. “Accordingly, any output by the GFXC WG would need to have the appropriate caveats that such output is always subject to any regulatory requirements or legal obligations placed on Market Participants in respect to disclosure,” the report states.
The report highlights eight characteristics that market participants can use to develop and review their disclosures, to help build awareness and dialogue between participants around business practices and the functioning of the FX market. The GFXC stresses that the characteristics have been created as a voluntary tool and are not intended to amend the Code itself or to suggest a sole means of conducting business.
The characteristics are broken down around four themes, the first being accessibility. The first three characteristics recommend that the FX disclosure is readily available, possibly by making them publicly available and “easy to find”; the that relationship between multiple disclosures is clear about how they relate to one another; and thirdly that the disclosures are shared as a standard part of the client onboarding process.
Around the broader theme of clarity, two characteristics are provided, the first recommending the language in the disclosure is “clear and concise” and the second that the disclosure is structured and organised in a manner to allow reader to easily navigate them.
Two characteristics focus on the area of review, noting that an internal governance procedure should be in place to review disclosures and update them as appropriate, and also that there is bilateral dialogue on their content. Finally, characteristic eight stresses that the information in the disclosure should be “useful and relevant” – and the report provides a table of topics to consider that include the participant’s role in the market (principal or agent), e-trading (including last look), execution and the use of confidential information.