Trading platforms must clearly disclose how they use data from client transactions, particularly regarding order handling, fees, and post-trade reviews, according to the updated FX Global Code.
In addition, the updates encourage a “hierarchy of settlement methods” and a risk waterfall approach, to address settlement risk, a significant concern due to increasing off-CLS trades.
The Global Foreign Exchange Committee (GFXC) completed its review of the Code on Friday, January 24.
The December 2024 version of the Code, which will supersede the July 2021 version, updates its principles of good practice in the foreign exchange market in two key areas: one focused on enhancing transparency around certain types of execution activity and the utilization of client-generated FX data, and the other on FX Settlement Risk.
Updates have been made to five of the Code’s fifty-five principles to strengthen the Code’s guidance on FX Settlement Risk, as well as to increase transparency around certain types of FX transactions and the use of client-generated data on electronic trading platforms.
“Settlement risk and liquidity remains one of the most pressing challenges in the FX market, and the updated FX Global Code rightly prioritises its mitigation,” said Basu Choudhury, Head of Trade Lifecycle Strategy, OSTTRA.
“We see this as a pivotal moment to ensure market participants not only manage settlement risk but also optimise their FX liquidity comprehensively,” he told Traders Magazine.
“Only by integrating tools to facilitate full visibility of exposures from point of execution with effective netting protocols and intraday FX payment-versus-payment (PvP) can firms be empowered to navigate future FX settlement challenges with greater confidence and precision,” he added.
As of December 2024, 1,328 entities globally have indicated their adherence to the Code’s principles by signing a Statement of Commitment (SoC). With the publication of the updated Code, the GFXC encourages all market participants to review the amendments and to consider renewing their SoC, taking into account the nature and relevance of the updates to their FX market activities.
The GFXC has given firms a 12-month period to adjust to these changes, designed to improve transparency, efficiency, and risk mitigation in FX markets.
Alex Knight, Head of EMEA at Baton Systems, commented: “The updates to the global FX code are a significant step forward in enhancing transparency and reducing risk in FX markets. It is now incumbent upon firms to use the next 12 months to implement the available solutions to facilitate payment-versus-payment (PvP) settlement.”
“Even where PvP settlements aren’t yet available, most firms still have an opportunity to deploy technology to further de-risk their business through the use of real-time information to track and orchestrate settlements in a controlled manner, and to reduce the volume of business that is settled gross.”
The December 2024 version of the Code will also include new links in its Foreword section that highlight some of the existing GFXC Reports. These reports are intended to facilitate wider awareness and understanding of specific aspects of the FX market and, where relevant, describe how they relate to the Code’s principles.
While these reports are not part of the Code or the SoC, they contain useful explanatory material and offer insight into the practical implementation of the Code principles.
A summary of the outcomes of the 2024 Code Review highlighting the specific changes to the Code is also being published, along with a document that includes the responses received by the GFXC to the Request for Feedback on the proposals to amend the Code and the DCS.
Alongside the revised Code, the Committee will also publish enhanced Disclosure Cover Sheets (DCS) for Liquidity Providers and Platforms.
In addition, the DCS for Liquidity Providers and Platforms were also extended with the objective to enhance transparency and comparability across providers on the use of FX data.
The GFXC met virtually on 5-6 December 2024 to endorse the outcomes of the Code Review. The GFXC Chair, Gerardo García, commented: “In terms of the 2024 Code Review, there has been strong GFXC support for the final proposals of the FX Settlement Risk and FX Data Working Groups. The Code amendments clearly address the concerns that Market Participants and LFXCs expressed during the review process and are consistent with the objective of having a more robust and transparent FX market.”
