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.”
Lowry says now that the Code is published, the FX industry as a whole has an opportunity to read it and debate its content, noting that “it’s a living document, that’s been made clear”.
However, he adds that central questions around the Code remain: “How does adherence work and what does adherence mean?”
On the panel that Lowry participated in at the conference, there was much talk of a “network effect’” in the FX industry that could help ensure that market participants adhere to the Code. The logic being that the more firms that publicly state their intent to adhere to the Code, the more it will put pressure on other market participants to do so as well.
But would an ECN really cut off the biggest liquidity provider on its venue if it didn’t adhere to the Code? Would a bank really stop servicing one of its biggest asset managers if it didn’t adhere to the Code? Would an investor really not place assets with a successful and proven asset manager because it doesn’t adhere to the Code? Essentially, the question is: where does the initial pressure come from to create this network effect?
“The network effect works in two ways,” responds Lowry. “The more people who use it, the more people who will want to use the Code. But I think we’ve really got to start at the top and make sure that the people who are consuming liquidity as the natural course of their businesses are the ones who are really putting pressure on people to adhere to the Code.”
You can watch the full interview here: