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Articles tagged by Compliance

NFA Creates Dedicated FX Compliance Rule The US National Futures Association (NFA) has adopted a new compliance rule (2-36) to govern foreign exchange transactions. NFA says that it has done so because, “Given the differences between off-exchange transactions and traditional exchange-traded futures and options, the board ...
FINRA Hits Deutsche Over Squawk Boxes The US Financial Industry Regulatory Authority (FINRA) has fined Deutsche Bank  $12.5 million for “significant supervisory failures related to research and trading-related information it disseminated to its employees…over internal speakers commonly known as squawk boxes”. FINRA says that despite “multiple ...
P&L Talk Series with Tod Van Name Profit & Loss talks to Tod Van Name, Bloomberg's global head of FX and commodities electronic trading, about how technology is changing the way that corporate treasurers operate. Profit & Loss: With a lot of global macro uncertainty anticipated for the year ahead, are corporate treasurers under more pressure when it comes to managing their FX exposures? Tod Van Name: There’s no question that corporations are always considerate of market pressures, and while there haven’t been wild currency swings in the US, where the dollar has been strong and stable recently, for treasurers not in the US it has become a particularly big issue.
In the FICC of it - The Global Code of Conduct Lots of people are talking about the Global Code of Conduct, but are they asking the right questions? Profit & Loss deputy editor, Galen Stops, discusses why incentives might be more important that enforcement mechanisms when it comes to ensuring adherence to the Code.
A New Dawn? May 25 marks the release of the full FX Global Code of Conduct, an event that has been much anticipated in FX circles. What will the Code bring to the FX industry and what are the key changes likely to be experienced by participants? Colin Lambert finds out. It all starts – and to a degree ends – with Annex Three, which sits at the end of one of the more important documents released in the FX industry. A lot has been debated and speculated over as the FX Code of Conduct has been developed by the Bank for International Settlements’ FX Working Group
The Code and the Individual Although most of the attention is on institutional adherence to the Code of Conduct, Colin Lambert suggests there is also a great deal that individual employees need to know. It was one of the first challenges identified by those creating the FX Code of Conduct – how do we get the message out there? It is not just about ensuring that all firms that operate in the foreign exchange industry understand their responsibilities under the Code – individuals too have responsibility. It was notable, talking to people this time last year, how few were concerned about the Code’s impact upon them.
Is Big Brother Watching You? Galen Stops looks at how chat room activity is being monitored and controlled following recent collusion scandals. “I’ve talked to hundreds of firms across the world and I haven’t yet met any that haven’t put requirements around information control, policy and security at the top of their agenda, it’s the first thing that comes to their minds,” says David Gurle, founder and CEO of Symphony, a cloud-based communications service provider. This focus around information control and security is perhaps unsurprising given the events of recent years, in which financial institutions have been forced to shell out billions of dollars in fines relating to accusations of collusion to manipulate the Libor and WMR Fix benchmarks.
ASIC Calls for More Focused Spot FX Training The Australian Securities and Investments Commission (ASIC) has released a report to coincide with the FX Global Code of Conduct which seeks to redress shortcomings in behaviour as well as to outline good practice on spot FX desks in the Australian market. The report, which was compiled following an investigation into local banks’ practices and led to fines against the top five Australian banks, says, “We observed a lack of appropriate training and guidance, particularly in relation to handling confidential information, considering client interests and conflicts of interest, and executing stop loss and fix orders. Training sessions were rarely specific or tailored to the role of employees operating in the spot FX market. We also observed that employees frequently engaged in practices which were learned from their peers without question or challenge.”
Has the Global Code Made Life Harder for the Buy Side? On the day that the second and final phase of the FX Global Code of Conduct was released, panellists at Forex Network New York debated whether it puts an unnecessary burden on buy side firms. Philip Weisberg, a member of the Market Participants Group (MPG) that helped craft the Code, stated that it “puts an enormous responsibility on the buy side”. Giving an example of this responsibility, he pointed to last look, a practice that some platforms do not allow and others allow to be implemented in a variety of ways. The platforms must disclose their last look policies, meaning that buy side firms need “to have some type of framework for evaluating the efficacy of a venue or liquidity provider choice or execution choice”, Weisberg explained.
The FX Global Code: Now the Hard Work Begins Despite two years of intensive work to produce the FX Global Code of Conduct, Chip Lowry, senior managing director at State Street Global Markets and chairman of the Foreign Exchange Professionals Association (FXPA), warns that the hard work in terms of adherence to the Code is just beginning. Having just participated in a panel at Forex Network New York discussing the implementation of the Code, Lowry comments: “It took two years to get to this point with the Code, and that’s been a lot of work. But I think that one of the things that came out on the panel was: now the hard work begins.”
FXPA Gets Behind the FX Global Code The Foreign Exchange Professionals Association (FXPA) will be promoting the FX Global Code of Conduct given that it addresses so many issues that the association has already been working on, according to its chairman. “There’s a preamble in the Code that it wants to promote a robust, fair, liquid, open, transparent market and those are the exact same adjectives that we use in the FXPA [mission statement], and so we look at this as being very complementary to our mission and we’re certainly going to be promoting the Code,” says Chip Lowry, senior managing director at State Street Global Markets and chairman of the FXPA.
New Study Highlights Buy Side Mifid II Concerns A new study by consultancy firm JWG shows that 90% of buy side firms believe they are at either high or medium risk of not being compliant with the Mifid II rules when they come into effect in January 2018. Among respondents to the survey, about one-third had less than £1 billion of assets under management (AUM), one-third had between £5 billion and £50 billion AUM and the remaining one-third had between £50 billion and £500 billion AUM. However, the level of preparedness was not found to be dependent on the size of the firm.
ECB Encourages Commitment to Global Code by May 2018 The European Central Bank (ECB) is publicly endorsing the statement of Commitment set out in the FX Global Code of Conduct and is encouraging FX trading counterparties to do the same. The FX Global Code is a set of global principles of good practice in foreign exchange markets, developed by central banks and market participants from 16 jurisdictions around the globe in order to promote a robust, fair, liquid, open and appropriately transparent market. Today the ECB invited FX market participants to publicly commit to the principles set out in the Code by endorsing the statement of commitment annexed to the Code by the end of May 2018.
The Global Code: Back to the Future When I joined a US investment bank in London as a graduate trainee in 1969, it was explained to me that they did not actually have a graduate programme nor were they particularly interested in the economics and politics that I had spent three years studying. I had been hired because I had a sound education and they believed, after several interviews, that I had the qualities of honesty and integrity that they insisted on for all employees, at all levels of job function and experience.
Regulation Forces FXPBs to Reinvent It’s no secret that recent regulatory requirements have put FXPB business models under increased pressure. But some firms also see regulation as an opportunity to change how their businesses operate in order to win new business, as Galen Stops reports. When questioned about the extent to which a combination of the Basel III regulations and the SNB event had caused a contraction in the FXPB space, there was some pushback from certain service providers. “I think that there’s a misperception that there has been a wholesale contraction in the FXPB space,” says John O’Hara, global head of FXPB and FX clearing at Societe Generale.
And Another Thing... As some one who has long argued we should not think in terms of 'banks' and 'non-banks' when it comes to liquidity providers in FX markets, it may come as a surprise to you that I think there is something fundamentally flawed in how we judge these two segments. There is not a level playing field in terms of compliance and capital requirements, and that was OK for a long while. Now though, the non-banks are hiring salespeople - and that gets my antenna twitching.
And Finally... Today is all about questions – the most pressing of which has to be, if Switzerland issues a digital currency, will it immediately put an offer in the market? Perhaps more pertinently, it is also about the impact of the lack of traders in the FX market, because if the first week of the year is anything to go by then cryptocurrencies will continue to steal the agenda – the traditional FX market just doesn't seem as though it can be bothered.
Thomson Reuters Announces Mifid II Updates Thomson Reuters (TR) has made a number of service updates following the January 3 go-live date for Mifid II. It is now offering Mifid II compliant data to clients from 57 global exchanges and eight new Mifid II trading and reporting venues, including Tradeweb's Approved Publication Arrangement (APA) and MTS BondVision's Multilateral Trading Facility (MTF). TR has also launched its MTF, which offers Mifid II compliant trade reporting, and updated its instrument reference data capabilities to ensure comprehensive coverage of the key financial instruments covered by the regulation.
Former Barclays FX Head in NYC Charged for Front Running Robert Bogucki, the former head of Barclays’ New York FX operation was charged yesterday in an indictment for his alleged role in a scheme to front run client orders. Bogucki has been charged in an indictment filed in the Northern District of California on January 16, with one count of conspiracy to commit wire fraud and six counts of wire fraud. He was due to make his initial appearance on January 17, at 2:00pm in Brooklyn, New York, before US Magistrate Judge Cheryl Pollak of the Eastern District of New York. According to the indictment, in September and October 2011, Bogucki is alleged to have misused information provided to him by Hewlett Packard (HP), which had hired Barclays to execute an FX transaction related to the planned acquisition of a UK-based company. 
MiFID II: Brace Yourselves, This is Only the Beginning Although it required a heavy lift from the financial services industry, the Mifid II implementation deadline came and went with minimum disruption. However, as Galen Stops points out, the real change is still yet to come. So here’s the good news for the FX industry: the January 3 Markets in Financial Instruments Directive (Mifid) II implementation deadline passed without any significant market disruption at the start of this month.   “January 3rd went relatively smoothly, our members generally reported a largely uneventful launch although the industry is continuing to work through a number of minor issues, which is what you would expect at this point in time,” says James Kemp, managing director, Global FX Division, Global Financial Markets Association (GFMA). 
MiFID II: Like a Swan Gliding Through Water The continued implementation of Mifid II will be generally characterised by lots of hard work in the background and not much immediate action in the foreground, argues Galen Stops. We all know the metaphor of the swan gliding seemingly serenly through the water, while in fact its feet are paddling away furiously underneath and out of sight. Well that swan is a pretty accurate representation of what the January 3 go- live date of MiFID II was like for many market participants, by all accounts. A huge amount of work had gone in behind the scenes to make sure that firms were compliant so that, when it arrived, the big day passed largely uneventfully.
Portware Signs FX Global Code Portware, a FactSet Trading Solution, has signed up to FX Global Code of Conduct. This means that the firm has pledged to uphold the six leading principles of the code: ethics; governance; execution; information sharing; risk management and compliance; and confirmation and settlement processes. “Portware expects its clients to benefit from the commitment to more robust and open practices across their foreign exchange (FX) operations, as well as the increased market liquidity a more trusted FX market is anticipated to generate,” says the firm in a release issued today. “We firmly believe in standards of transparency, fairness, liquidity, and ethical practices in the FX market,” says Christopher Matsko, head of FX trading solutions, FactSet.
Regulators Set to Give FinTech Firms a Long Leash It seems that regulators are unlikely to place any significant burdens on new fintech firms emerging in the wholesale financial markets in the near future, given their lack of familiarity with the technologies involved. Speaking on a recent webinar hosted by Profit & Loss, Justin Slaughter, a partner at Mercury Strategies, explained that, when it comes to fintech, regulators in the US are still very much in “information gathering mode”. “Much of what regulators are doing right now is simply trying to educate themselves. There is a significant lack of understanding about how fintech is so much broader than, say, just cryptocurrencies or even DLT [distributed ledger technology],” he said.
Can Peer Pressure Work? 2018 is a big year for the FX Global Code as it will celebrate its first anniversary – a date by which all participants are expected to have adhered to the code’s principles. Will the code be a success? Colin Lambert thinks he has the answer. It was, and still is, depressing having to read through legal papers and regulatroy notices on a regular basis, all of which deal with misconduct in FX markets, and nobody whould be misguided enough to think that such actions will not continue in the year ahead. They will, and probably the year after that. There is an upside in having to rake over the ashes of past misdemeanours, however, because it offers a timely and regular reminder of the importance of the FX Global Code.
Buy Side Group Releases Last Look Guidelines The UK’s Investment Association (IA) has today published a number of guidelines regarding the use of last look, seeking to address concerns that this practice can negatively affect the ability of asset managers to meet the needs of their clients. As part of the guidelines, the IA has also identified a number of instances in which last look should no longer be considered acceptable due to the potential for misuse of information by the liquidity provider. These include: pre-hedging during the last look window, trading activity based on information derived from rejected trades and trading activity based on information from a request for quotation which is in progress or those that are not won.