New forex global code in London aims to restore confidence
- Peter Barker
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E-mail Xinhua, May 26, 2017
LONDON, May 25 (Xinhua) -- A new code of conduct to restore confidence in foreign exchange markets and to help stop the wave of scandals which have engulfed some major banks operating in those markets was unveiled in London.
The new FX Global Code was unveiled on Thursday by members of the Bank of International Settlement's (BIS) Global FX Working Group at the Bank of England (BOE), and the 80-page code contains 55 principles.
The Code is a set of global principles of good practice in the foreign exchange market, worth a notional 5 trillion U.S. dollars in trading volume each day, and has been developed by central banks and market participants from 16 jurisdictions to provide a common set of guidelines.
The aim is to promote the integrity and effective functioning of the wholesale foreign exchange market, including ethics, governance, execution, information-sharing, risk management and compliance as well as confirmation and settlement.
The Code is expected to be adopted across the entire FX market, including the buy-side, sell-side, non-bank participants and platforms.
The BIS has also provided a draft Statement of Commitment for firms to publicly demonstrate their adherence to the Code, in the belief that firms are more likely to adhere to the Code if their peers are doing so too.
The Code does not impose legal or regulatory obligations on market participants or substitute for regulation, but is intended to supplement local laws, rules and regulation by identifying global good practices and processes.
Guy Debelle, deputy governor of the Reserve Bank of Australia, and a Working Group member told Xinhua: "What we are trying to do is ensure a standard of behavior. There have been some obvious events in the past which were not appropriate."
These events have led to large fines for big banks for bad behavior. On Wednesday BNP Paribas was fined 350 million U.S. dollars by the New York Department of Financial Services for misconduct in its foreign exchange business, and in November 2015 Barclays was fined 150 million U.S. dollars for misuse of the "last look" practice where banks can back out of a deal.
Other banks fined include Citi, UBS, and JP Morgan, who were all fined large sums amounting to billions of U.S. dollars in 2014-15, before the BIS working group was set up.
Some of the fines related to traders inappropriately sharing confidential information about their clients' activities.
The code covers behavior in six areas -- risk management and compliance, governance, ethics, execution, confirmation and settlement, and information sharing.
Debelle said: "There are a number of issues around benchmark fixing and inappropriate sharing of information which will directly interest the Code. A number of the behaviors identified over the last few years have some aspect of inappropriate sharing of information involved between market participants.
"To some extent a fair chunk of what we have here boils down to appropriate transparency and appropriate information sharing to your counterparty, and that I think is at the heart of a lot of the issues identified over the last few years."
David Puth, a fellow member of the working group representing market participants and head of settlement bank CLS, told journalists at a press briefing to launch the Code: "Over the course of the next 12 months, we will look for all wholesale market participants to adopt the principles."
Puth said it was an aim of the Code to allow foreign exchange markets to regain the trust lost in the past few years as a result of the scandals.
New technology is having a profound impact on markets, and the Code also points out best behavior for algorithmic trades provided a list of disclosures that traders should make.
Market participants were quick to back the Code.
Stephen Lindsay, Head of Standards at Swift, the global financial messaging service firm, said Swift "welcomes and strongly supports the launch of the FX Global Code as we believe it will strengthen the integrity and effectiveness of the wholesale foreign exchange market."
Curtis Pfeiffer, chief business officer at Pragma Securities, a quantitative trading and transaction cost analysis (TCA) provider, said that the reputation of currency market had been "tarnished in recent years and the Code was "certainly a good start, one that was needed, and will make the FX markets better for its participants.
Dan Marcus, CEO of ParFX, an electronic spot FX platform, said his firm strongly supported adherence across the industry.
The Code will be owned and amended by the Global FX Committee, and the BOE's Chris Salmon was named as its chairman. The committee will meet semi-annually, said Debelle, language will be changed each year, and the Code will be revised every three years to accommodate new challenges. Enditem
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