On the 25th of May 2017, the Global FX Committee (GFXC) published the FX Global Code (the Code). Developed by a partnership between central banks and Market Participants from 16 jurisdictions around the globe, the Code is fifty-five global principles of good practices in the wholesale foreign exchange market (FX market), organised around six leading principles, which are:
- Ethics: market participants are expected to behave in an ethical and professional manner to promote the fairness and integrity of the FX market;
- Governance: market participants are expected to have a sound and effective governance framework to provide for clear responsibility for and comprehensive oversight of their FX market activity, and to promote engagement in the FX market;
- Execution: market participants are expected to exercise care when negotiating and executing transactions to promote a robust, fair, open, liquid and appropriately transparent FX market;
- Information sharing: market participants are expected to be clear and accurate in their communications and to protect confidential information to promote effective communication that supports a robust, fair, open, liquid and appropriately transparent FX market
- Risk management and compliance: market participants are expected to promote and maintain a robust control and compliance environment to effectively identify, manage, and report on the risks associated with their engagement in the FX market; and
- Confirmation and settlement processes: market participants are expected to put in place robust, efficient, transparent, and risk mitigating post-trade processes to promote the predictable, smooth, and timely settlement of transactions in the FX market.
The Code has been developed to provide a common set of guidelines aimed to promote the integrity and effective functioning of the FX Market. The objective of the Code is to promote a robust, fair, liquid, open, and appropriately transparent market in which market participants can operate in line with accepted standards of behaviour, with confidence, at competitive and transparent prices, and with the ability to access market information. However, it does not impose legal or regulatory obligations nor does it replace domestic regulation.
It is expected the Code will apply to all FX market participants, and their personnel, that engage in the FX Markets as a regular part of their business. This includes, sell-side and buy-side entities, non-bank liquidity providers, operators of E-Trading Platforms, and other entities providing brokerage, execution, and settlement services.
The Financial Conduct Authority, as well as other regulators, have welcomed the publication of the Code and have stated that they expect senior managers to take responsibility for and be able to demonstrate their own adherence with standards of market conduct. Practically, it means including the Code into firms’ policies and procedures and developing examples of good and poor practices within their business.
The Code will be periodically reviewed and is expected to evolve over time.
A controversial topic during the establishment of the Code was the “last look”, which is the practice of advertising a price but to reject the client’s order to trade at that price. The GFXC has launched a Request for Feedback on Last Look practices in the Foreign Exchange Market, which are requested by 21 September 2017.