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Global FX Code Gains Adoption but Last Look is a Thorny Issue
Traders Magazine Online News, June 18, 2018
Over 200 market participants have signed the FX Global Code of Conduct, a voluntary set of principles published a year ago to restore trust and curb bad behavior in the wholesale foreign exchange market.
Citing a rapid increase in the number of signatories from every corner of the foreign exchange markets, the Foreign Exchange Professionals Association (FXPA) held a webinar on May 30 to discuss the status of the FX Global Code on the one-year anniversary of its publication.
“Market practitioners truly [are] embedding the code into their day-to-day practices of how they run their business,” said David Puth, CEO of CLS Bank International and Vice-Chair of the Global Foreign Exchange Committee (GFXC).
Consultants and other entities are working with market participants to ensure they understand the code and how it apples to their businesses, noted Puth.
Upon publication of the code on May 25, 2017, the Global FX Committee (GFXC) was formed and is responsible for administering the code and future developments. Comprised of central banks and private sector participants representing FX committees from 16 international FX trading centers, the body is on a mission to sign up as many foreign exchange market participants as possible
The purpose of the code is to enhance the ethics, governance, and fairness in the $5.1 trillion-a-day foreign exchange market, which is highly automated, but has been historically unregulated.
“This umbrella code and principles-based code was really designed to create a framework for doing the right thing,” said Lisa Shemie, Chief Legal Officer, Cboe FX and Cboe SEF, who spoke as a member of the board of directors of the FXPA.
While citing significant progress in the numbers of signatories that have pledged adherence, the FX Global Code is facing challenges over what it means to adhere to the global code, and how it applies to a diverse cross section of market participants, such as non-bank liquidity providers and proprietary trading firms, said FXPA officials.
In terms of adherence, an information deadline of May 30, 2018 was set, but this has morphed into a less than voluntary deadline, said one speaker. Central banks are requiring large banks to adhere to the code so there is very little leeway for them not to. Electronic trading venues or ECNs are not subject to a regulatory body or an FX committee. They find it hard to justify why the code applies to them.
Adhering to the code — a set of 55 guidelines for good market practice — requires firms to sign a letter of commitment to be published on a public web site or on a public register for clients and counterparties to see.
On May 29, GFXC launched the Global Index of Public Registers to serve as a central reference point for market participants to demonstrate their commitment to the code. The Global Index will aggregate information from participating public registers and make it available in a single, convenient location, noted the release.
But the code is still facing pushback from many on the buy side over last look and pre-hedging — two controversial practices that alarm institutional users of the FX markets.
Last Look Debate Continues
Many buy-side firms are not comfortable with the inclusion of last look and pre-hedging in the code.
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