THE GLOBAL FX CODE – Phase1- What are these 30 pages good for?
“It took all these people to come up with: act honestly, act fairly and with integrity; as new ethical principles?” was my first reaction when skimming through the PDF, posted on the BIS website. The further I read, the more disappointed I was about the lack of teeth this document offered. When I arrived at the end of page 29, I concluded that this was mostly fluff and a big disappointment.
My initial assessment was wrong! And this is why:
After management and compliance in most banks hit the big red Panic Button, the FX Market changed dramatically.
Volumes came off. Traders and sales personal, not involved in any of the shenanigans of the past, had to constantly look over their shoulders and fear for their jobs. Information sharing got mostly forbidden and participants shut most or all communication channels down, in fear of saying the wrong thing or saying anything at all. Making money on a product sold is a good thing in every business. Taking edge/markup on an FX trade used to be a regular thing as well. It then got to be something both problematic and complicated. With larger deals, it needs to be explained to Compliance, why and how money was made. In reality, all markup should be measured automatically to traded amount and not as a standalone number.
The new FX Code gives guidance in a manner that allows participants to move again with greater comfort. It is written by market participants for market participants.
It is the much needed prescription drug to address the paralysis, panic and depression in the FX Market.
It is not a card Blanche for plunder and pillage. Do not expect it to cover all dark corners.
The new code spells out that FX can still be a “people business,” within the guardrails of the code itself, in combination with local and market laws, rules, and regulations. It allows bringing information sharing and market color back into the market. This is necessary for an OTC market. Exchanges publish all kind of information on volumes, order book depth and Insider-Trading Data to their users. In FX it used to be the job of market makers to give clients some market color and information.
The new code is overall very well written and should be understood by anybody participating in this market and even people outside the market. The examples in Annex 1 are obvious and taken directly out of participants’ daily routine. Interestingly, it also touches on the behavior of buy-side participants. The fact that clients have to take matters into their own hands and should use some kind of Trading Cost Analysis, I found surprising to come out of this code but a very valid point.
Execution -PRINCIPLE 6 ” Clients should be aware of the risks associated with the transactions they request and undertake, and should regularly evaluate the execution they receive. Clients should clearly communicate expectations of the Market Participants who execute their orders. They should hold them accountable against the guidance contained within this Global Code as well as against other relevant standards. Clients should complete appropriate due diligence around their execution”.
Back to my initial question: What are these 30 pages good for?
They allow participants to move more freely again, understanding what they can do and how it needs to be done . Hopefully it will direct the attention back to ways to grow this business and away from focusing on damage control and second guessing every written or spoken word.
This is Phase 1 of the Code, and more is to come. Certainly, more will come on electronic trading rules with the focus on the Last Look. As mentioned before, participants STILL need to be very aware of all other local- and market laws, standards, and regulations. MAR, effective July 3rd, 2016 should also not be forgotten.
Even it came across as boring with a lack of teeth on first sight; I believe this is more than what could have been asked for, as of now. A job done very well by all involved.
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