(FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.)
An initiative to raise standards in currencies trading will mark eight years this May, and people involved say there’s more to accomplish.
The past, present and future of the FX Global Code was discussed in a February 11 panel session at TradeTech FX in Miami.
By way of background, Harri Vikstedt, Senior Policy Director, Financial Markets Department at Bank of Canada, noted the Foreign Exchange Working Group was formed in 2015 to look at issues in the marketplace and develop a set of best practices.
About 80 large FX market participants were involved in the early days, including central banks, sell-side broker dealers, infrastructure providers, and investment management firms.
The FX Global Code rolled out in May 2017 addressed governance, risk management, and compliance, as well as topics such as electronic trading and prime brokerage. The code represented a “major achievement for the OTC market,” Vikstedt said.
The code is not regulation and there is no direct enforcement, Vikstedt noted; rather, the idea is to set parameters and guidance and have the industry police itself.
To be sure, any code of conduct in a rapidly evolving market such as FX can be obsolete in a short period of time, so the FX Global Code is reviewed every three years to ensure it stays current and relevant. The most recent update was announced in January.
Gerardo Garcia, General Director of Central Banking Operations, Banco de Mexico, said at TradeTech FX that the update aims to reduce settlement risk, which an estimated 10% to 15% of FX transactions is exposed to, and also boost transparency for certain FX transactions and certain types of FX data.
Anna Nordstrom, Head of Domestic and International Markets, Market Group, Federal Reserve Bank of New York, described the FX Global Code as a “living document”. There is currently a good level of energy and engagement in the marketplace around the FX Global Code, and there are signs that it is having an impact on transparency into the market and execution practices.
The code places a spotlight on good conduct, sets expectations, and provides education, Nordstrom said, adding that a present and future challenge is to increase code adoption.
