Articles tagged by FX Global Code
ACI’s explicit support for the FX Global Code helps plug an important gap in the Code's reach – for it moves its influence beyond the developed and major emerging markets and into some real local markets.
It is important that the Code reaches all market participants, so there are other gaps to be filled, not least the small private trading firms. Can we repeat the example of ACI to help reach these firms, as well as others that should be more aware of their responsibilities?
One of the key questions surrounding FX Global Code of Conduct, of which the second part is due to be released on May 25, is whether it would have actually prevented the scandals that have dogged the FX industry in recent years.
Brigid Taylor, global managing director of ACI, argues that it would have.
“In financial markets people say: talk is cheap but my word is my bond. So if I say that I’m going to do something then I need to understand what that means, I need to understand how to apply that knowledge and then I need to do it,” says Taylor, adding that this knowledge ensures accountability.
Guy Debelle, deputy governor of the Reserve Bank of Australia and chair of the FX Working Group responsible for producing the Global Code, discusses his hopes and ambitions for the much-awaited document with Colin Lambert.
Colin Lambert: May 25 sees the full Code released after two years of work, what is your message to the wider market that is seeing it in its entirety for the first time?
Guy Debelle: I would like to stress that this has very much been a public/private endeavour to move the FX market to a better place by providing guidance around what constitutes good practice.
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
Profit & Loss talks to David Puth, CEO of CLS and Chairman of the Market Participants Group (MPG), about how the FX Global Code of Conduct will work.
Profit & Loss: What was the process like to develop the Code from start to finish? Were there challenges in achieving consensus amongst so many different market participants?
David Puth: The development of the Code has generally been a constructive process. The committees involved in its creation are: the FX Working Group (FXWG), which is the central bank working group; the Market Participants Group (MPG), which is the group that I chair; and a number of industry groups, including regional FX committees.
There is one area of the Global Code of Conduct that continues to attract controversy, and, Colin Lambert says,
we all know what it is…
Although the assessment is a little harsh given the type of misconduct that led to the creation of the FX Global Code of Conduct, it is hard not to understand where the head of e-FX trading at a major bank in London is coming from when they note, “The Code had one job – give us clarity on last look – and it has failed miserably.”
There remains the odd voice still raising concerns about Principle 11 and its apparent endorsement of pre-hedging, however, Guy Debelle, chair of the FX Working Group that created the Code, stresses this Principle is really about the “demonstration effect”.
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.
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.
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.
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.”
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.
The Foreign Exchange Professionals Association (FXPA) is hosting a webinar on Wednesday, May 31, that looks at “How Does the Global Code Apply to Me?” at the following times: 10am (Eastern US) / 15:00 (UK) / 10pm (Singapore).
Webinar participants include Chip Lowry, Senior Managing Director at State Street Global Markets and Chair of FXPA; Lisa Shemie, Associate Counsel at Bats Global Markets, a CBOE Company and Member of the FXPA Policy Committee; Tahreem Kampton, Senior Director, Microsoft and Board Member of FXPA; and David Puth, Chair of the Market Participants Group for the Global Code, and CEO of CLS.
Retirement plan fiduciaries, who themselves or through a third party, engage in foreign exchange transactions on behalf of the plan, should be aware of the new FX Global Code (Code). The Code is a noble effort to repair the reputation of the wholesale FX market in the wake of scandals and controversies.
Though it does not have the force of law, it can serve as a useful springboard for fiduciaries to buttress risk controls and fiduciary awareness over an industry that seems obscure to some. The Code can catalyse a change from disengagement and insufficient understanding of common (and, in certain instances, controversial) FX practices to engagement and a deeper understanding of a market whose products are in so many investment policy statements and mandates of retirement plans.
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.
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.”
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.
CLS Group has thrown its hat in the ring to host a public register listing those firms that have signed the Statement of Commitment to the FX Global Code. Profit & Loss understands other regional or national initiatives are also underway, however CLS is believed to be leading the push for a global register, in spite of it apparently limiting the initiative to CLS members. The commitment process was initially expected to take six-to-12 months, however firms are already signing up.
Thomson Reuters has signed the statement of commitment to the Global FX Code of Conduct, formally pledging adherence to the Code’s standards to promote integrity, fairness, transparency and the effective functioning of the global foreign exchange markets.
Thomson Reuters has played an active role in the development of the Global Code through its membership of the Market Participants Group (MPG) and through participation in regional committees, including the London Foreign Exchange Joint Standing Committee, the Federal Reserve Bank of New York Foreign Exchange Committee, the Tokyo Foreign Exchange Market Committee, the Canadian Foreign Exchange Committee, and the Australian Foreign Exchange Committee.
Norway’s sovereign wealth fund, Norges Bank Investment Management, is calling for greater transparency and verifiability in FX markets because it believes that changes in the market structure in recent years has exacerbated the informational advantages enjoyed by dealers. It believes this change is required because it is the key to mitigating the impact of these informational advantages, without negatively affecting liquidity in what it describes as "this important market". Inevitably, last look is involved, but the paper also highlights issues around algorithmic controls and liquidity provision.
The Global Foreign Exchange Committee (GFXC) met this week to consider the results of its consultation over the wording in Principle 17 of the FX Global Code of Conduct, specifically relating to the use of last look, and says it has concluded that Principle 17 “should indicate that market participants should not undertake trading activity that utilises the information from the client's trade request during the last look window”.
At the same time, however, the GFXC has recognised the concerns by some involved in the feedback process that such an action would negatively impact the quote and cover, or riskless principal model
NEX Group (Nex) says it has signed a Statement of Commitment to adopt the principles of the FX Global Code across its EBS FX trading platforms and NEX Optimisation services.
The firm announced the signing of the Statement of Commitment and introduced a new Nex public register at the Global Foreign Exchange Committee meeting held at the Nex offices in London this week.
The purpose of the register is to raise awareness of those that have signed their Statement of Commitment to the Code.
In spite of spending a night at the back end of a 747 I am in a strangely optimistic mood this morning - and even more surprisingly I am so after reading through the New York Department of Financial Services' report on its investigation into Credit Suisse’s FX business. I have also read through the GFXC release that highlights the progress being made on last look, however and that, allied with a few voices of dissension recorded in the pages of the DFS report have brightened my mood.
Stating that, “All central banks in the European System of Central Banks (ESCB) are strongly committed to supporting and promoting adherence to the Foreign Exchange Global Code of Conduct, 15 of the ESCB central banks, including the European Central Bank itself, simultaneously issued Statements of Commitment to the Code. By issuing these statements, these ESCB central banks say they are demonstrating that they are committed to adhering to the principles of the Code when acting as foreign exchange market participants.
The Reserve Bank of Australia and ANZ have announced that they have signed a statement of commitment to the FX Global Code of Conduct.
At the beginning of the month, Profit & Loss reported that 15 central banks had signed this statement of commitment to the Code and in a separate article, noted comments from Mark Carney, governor of the Bank of England, in which he said that the Code may become “more firmly embedded” in the UK’s Senior Managers Regime (SMR), a move which could potentially lead to tangible penalties for firms that do no comply with the Code.
The Global Foreign Exchange Committee (GFXC) has published an update to the FX Global Code, one that incorporates revised guidance on trading in the last look window, known as Principle 17.
The revised Principle 17 states that market participants should not undertake trading activity that utilises information from the client's trade request during the last look window. It also describes the conditions under which certain trading arrangements (sometimes referred to as 'cover and deal') may be distinguished from this guidance.