The 2018 FX Global Code Survey results have been released and while, expectedly, the last year saw significantly increased adoption rates amongst firms, there are areas of potential concern for proponents of the Code.
The survey aims to measure the awareness, adoption, implementation, and effects of the Global Code for market participants. The GFXC says the information collected through the 2018 survey is an important input as it continues to promote, maintain, and update the Code and embed it in the fabric of foreign exchange markets.
The survey identified many aspects of how the Global Code is being implemented worldwide, which will inform the GFXC’s future work. Among the key findings were that 95% of respondents had read part or all of the Code, and over two-thirds were aware of the updates made to the Global Code since its launch in 2017.
Among respondents, adoption of the Global Code had significantly increased from 2017 (11%) to 2018 (55%) and 80-90% of respondents thought the Code had had a positive effect on their firm and the wider foreign exchange markets. Communication from the GFXC was broadly seen as positive.
“We are pleased to see widespread adoption and awareness of the FX Global Code,” says Simon Potter, chair of the GFXC. “The reports issued today are the latest examples of the valuable work the GFXC is doing. We look forward to further discussion in the months ahead.”
The survey highlights the acceleration in adoption noted anecdotally in the FX market through 2018 as firms met the first quarter deadline for signing a Statement of Commitment (SoC), however there are potentially a few worrying findings. It is important to note that the demographic make up of respondents differed from the 2017 survey so direct comparisons are tricky, however the fact that 30% of sell side firms had not adopted the Code has raised eyebrows.
A source close to the GFXC says that while this number is higher than expected, it largely reflects those firms who responded to the survey. “There were significant responses from markets like India and China where there are a tremendous amount of sell side firms that are maybe still working through the adoption process,” the source suggests.
Elsewhere, while the GFXC highlights in its key findings on adoption that “the majority of respondents indicated they expected or required their counterparties to adhere to the Code (82%); 47% expected or required use of the SoC,” there is more devil in the detail. Just seven of the 303 respondents observed that their firm required its counterparties to adhere to the Code but had no expectations they should have signed an SoC, and just six firms said their firm required its counterparties to adhere to the Code and have a signed SoC.
This suggests that while the majority of firms expect their counterparties to adopt the Code, it is clearly not a deal breaker. The GFXC says that reasons for adopting the Code varied, but for respondents who had not yet decided to adopt, the level of adoption across the market is an important consideration.
Just 26 of the 303 responding firms reported their firm had done nothing to embed and monitor the Code in their practices. Amongst the vast majority that had taken steps to embed the Code, the most common were staff training and incorporating the Code in internal documentation. Respondents also noted that the biggest challenges to implementing the Code involved maintaining an audit trails and setting a suitable level of training for staff.
While the 2017 survey asked respondents what effect they though the Code would have going forward, the latest survey looks back and asks what impact the Code has had. In 2017 most respondents thought the Code would have a positive impact on the FX market and that has been confirmed in the latest survey with the majority of respondents seeing a “very positive” or “positive” impact from the Code within their firm across all areas.
Again though, a few outliers emerge a very few respondents in each category have seen a “somewhat negative” impact from the Code within their firm. These include the critical areas of transparent and fair order handling (one respondent somewhat negative), transparency around pre-hedging practices (three respondents somewhat negative),transparency around reference prices are established (two, with one respondent “very negative”), transparency around mark up prices (five), transparency around last look practices (three), the appropriate handling of confidential information (three), and the appropriate treatment of confidential information when giving market colour (five).
Perhaps the most interesting result from the survey is around observed behaviours. The GFXC asked respondents how often they encountered certain desirable market behaviours linked to specific Code principles. In both the 2017 and 2018 surveys the majority of respondents reported encountering these desirable behaviours “Always” or “Often” (approx. 60-80%), however for questions related to “experience of desirable behaviours”, the 2018 results showed a small decrease in the share of respondents answering “Always” and an increased share of respondents answering “Occasionally”.
Given differences in the respondent pool, the GFXC says it is not relying on year-to-year comparisons. “Nonetheless, the apparent variation in the responses to questions related to “experience of desirable behaviours” is worth exploring,” it states. “The GFXC plans to undertake further work to understand whether actual market behaviours are changing, or whether expectations about what constitutes desirable behaviour have changed, or whether other factors or trends are in play.”
Overall the survey represents a very positive picture for the adoption and impact of the Global Code, however it should also caution against complacency. As the outreach effort being conducted by the GFXC continues, adoptions levels should rise further and as more surveys are conducted a more stable view of behaviours is likely to emerge.
That said, the sense is that 2018 was probably the year in which the GFXC picked the last of the low hanging fruit and that 2019 onwards will see progress slow but, hopefully, not stall.