UPDATE
FOREIGN EXCHANGE
Industry told to adhere to Global FX Code or face regulation
Expert panel at TradeTech FX in Barcelona outlined the benefits of adhering to the Code , and focus on more adoption from the buy-side .
Foreign exchange ( FX ) market participants have been warned that a failure of industry-wide adoption of the Global Code of Conduct could lead to further regulation .
A panel of speakers at TradeTech FX in Barcelona , who have been heavily involved in the establishment and development of the Global Code , told delegates that adherence is imperative despite how little or how many of the Principles apply to individual firms .
“ The process of adhering to the Code will be different for each market participant ,” said Adrian Boehler co-head of FXLM and commodity derivatives at BNP Paribas , and member of the Market Participants Group that has been working alongside a number of central banks globally on the FX Global Code .
“ Despite the number of Principles that apply , everyone is an important a part of the ecosystem and has to play a role in mending trust in the industry . It is a privilege that we can sign up voluntarily , but if the pace of adoption is not quick enough , then we need to contemplate a future where we are regulated as an industry .”
The panel also explained that buy-side adoption of the Global FX Code has been slower than anticipated because the commercial benefit to the sell-side is more obvious . However , the commercial benefits to the buyside are increasing due to the legitimacy of operation for end clients .
“ Our priority for the future of the Code is the expand the buy-side outreach ,” added Roswitha Hutter , secretary of the foreign exchange contact group at the European Central Bank . “ The idea here is to lower the bar of adoption for the buy-side and identify the challenges and motivations for those that have already signed up – it ’ s a call for volunteers in raising awareness .”
The panel also heralded a recent report by NEX Group which outlined the benefits to execution and affects on the ‘ last look ’ method since the Global Code was established one year ago . The report analysed activity on its bilateral EBS Direct trading platform and found a significant reduction in hold times , reject rates and a tightening of spreads since the introduction of the Global Code .
“ There has been a lively and constructive discussion particularly around ‘ last look ’, but we could not come up with the language around that which satisfied all market participants . We settled with less granularity than some market participants would have liked , but all are happy with the direction the Global FX Code is evolving ,” Boehler added .
Last look practices provide the opportunity for banks to decline or reject a trade when the market has moved against its position , and has proved to be a point of contention with FX .
“ We are already starting to see the positive changes of things since the FX Code was launched a year ago , but we also see that are some grey areas that we need to work on ,” Stephane Malrait , chair of the FX Committee at ACI , concluded .
12 // TheTrade // Autumn 2018