The Financial Markets Standards Board
(FMSB), established in the wake of last years Fair and Effective Markets review
(FEMR) process in the UK, has published its first draft standard aimed at
improving conduct in FICC markets.
The FMSB’s work ...
Alongside last week’s publication of an update
on the Fair and Effective Markets Review (FEMR), the UK’s Financial Conduct
Authority (FCA) has separately published a progress report on its own FX
The programme, which was launched
Where to start? Well I will get to those industry “experts” who have been arguing with me for the past two weeks (actually months) that liquidity is great in FX later, for now let’s kick off by getting to the crux of the issue. This is not necessarily about whether algos ran wild, or someone ran an option barrier, this is about a(nother) fundamental breakdown of the FX market structure.
The time has come to accept that what happened Friday morning in Asia is a mess of our own making; to take our heads out of the sand and at least acknowledge there is a problem with liquidity in FX markets.
The president of the Federal Reserve Bank of New York, William Dudley, has reiterated his call for a database of banker misconduct that will “stop rolling bad apples”.
Speaking to open a New York Fed conference on culture and behaviour in financial services, Dudley, who was expressing his own views, observed that the evidence is pervasive that deep-seated cultural and ethical problems have plagued the financial services industry in recent years. He further hinted that the industry needs more than principles to reform conduct and that any guidelines need teeth.
Outgoing deputy governor of the Bank of England, Manouque Shafik has called for a move from what she terms “an ethical drift” to an “ethical lift”.
Speaking at the New York Fed conference on conduct and behaviour, Shafik accepted that misconduct in financial markets is nothing new, but argued the wave of misconduct which has emerged in the aftermath of the financial crisis is different. She highlighted the benefits of the UK's blend of "hard law" and "soft law" when establishing a compliance framework.
The last week has seen plenty of activity concerning conduct-related issues. We have had the first trader plead guilty to collusion and manipulation, a group of banks have had their fines for the same misconduct ratified and a trader has – rarely – lost an unfair dismissal case. As the lawyers continue to pick over the carcass of the conduct issue, the industry needs to focus on renewal and central to this is the establishment of a proportional sense of realism – both on the part of individuals and their employers.
One of the major codes of conduct developed around the turn of the century is being retired following the successful launch of the FX Global Code of Conduct. In a statement, ACI – The Financial Markets Association says it is withdrawing its Model Code, which was first released in 1999 and subsequently updated on several occasions in order to provide national associations and other stakeholders with uniform language regarding the current status of the Model Code, the re-writing of which, was put on hold in 2016.
The Bank of England has today issued Statements of Commitment to the FX Global Code, the UK Money Markets Code and Global Precious Metals Code.
The Bank says that in issuing the statements, it is demonstrating that it is committed to adhering to the principles of these Codes when acting as a market participant in the relevant markets, and that its internal practices and processes are aligned with the principles of the Codes.
“The principles of these Codes are important in promoting the integrity and effective functioning of these respective markets,” it states.
The UK’s Financial Conduct Authority has outlined its plans for whole financial markets in its 2018-19 Business Plan, which was published this week.
The FCA notes that wholesale financial markets are “complex” and have undergone large-scale and complex regulatory change, including the Markets in Financial Instruments Directive (MiFID II) and the Market Abuse Regulation (MAR). It adds that technology and innovation are affecting markets’ business models and their users have different levels of sophistication. It highlights insider trading, market manipulation and other forms of market abuse as activities of interest.
The FICC Markets Standards Board (FMSB) has published a Transparency Draft of a new Statement of Good Practice on Information and Confidentiality for fixed income and commodities markets.
The FMSB says the proposed guidance is not intended to apply to the FX markets, which is covered by the FX Global Code, or to the precious metals markets, which is covered by the Precious Metals Code, rather it seeks to build on those works for the fixed income and commodities markets.
The Australian Securities and Investments Commission (ASIC) has expressed disappointment at the failure of National Australia Bank to fully implement a reform programme linked to an Enforceable Undertaking (EU) levied by ASIC after deficiencies were found in the bank's wholesale spot FX business.
NAB, along with the other major Australian banks, were fined by ASIC in December 2016 for a series of failures in their FX businesses, including attempts at front running orders, manipulating fixes and inappropriately sharing confidential information.
The Australian Securities and Investments Commission (ASIC) has called on participants in the retail OTC derivatives sector to improve their practices after recent ASIC activities showed their conduct “fell short of expectations”.
The products offered by retail OTC derivatives issuers in Australia include binary options, margin foreign exchange and contracts for difference.
ASIC says that a recent review of 57 retail derivative issuers identified a number of risks associated with the products offered to retail investors by OTC derivatives issuers.
In this week’s In the FICC of It podcast, Colin Lambert apologises to the English nation and Galen Stops talks about the needs of a millennial.
They also discuss the week’s news from the FX world including SGX launching futurised OTC products and LCH going live with deliverable FX options clearing, as well as deliberate upon how hedge fund performance is measured; US regulators’ attitudes to cryptocurrencies; and the latest blow to the desktop terminal industry. They close out with a quote from their favourite profession – the legal industry – which rather aptly reinforces something Colin Lambert has been saying for some years – and let’s face it, if he says enough at some stage a lawyer somewhere will have to agree, it’s the law of averages!
In case you missed some of the original coverage this week, you can catch up here:
SGX Launches “Futurised” OTC FX Product
LCH Goes Live with Deliverable FX Options Clearing
US Regulators Shift Attitudes Regarding Cryptocurrencies
Hedge Funds Suffer in June: BarclayHedge
And Finally…(subscription required)
There has been more emphasis within the financial services industry on the responsibility of the individual in recent years as regulators have dealt with misconduct, but will this ever actually succeed when too many institutions – banks especially – have such a complex and over-lapping management structure?
How can an individual be responsible for something when they are a “co” head of business and into the bargain report to about seven people, all of whom are also “co” heads of something?
In this week’s podcast Galen Stops explains the devil in the detail behind the SEC rejecting bitcoin ETFs, the changing market structure in crypto generally, and how market participants are going about institutionalising the new asset class.
Colin Lambert meanwhile, is in a punchy mood and wants to take everything and everybody to task.
They observe how crypto-strategists are just the same as fiat strategists; discuss the barriers to entry for currency managers; the pricing of credit and liquidity in FX; and Lambert in particular has a problem with investors’ approach to allocating to hedge funds.