Roger Rutherford
Roger Rutherford

The FX Global Code - An overview of progress to date

In September 2018, the Global Foreign Exchange Committee (GFXC) launched a new survey that measured awareness and adoption of the FX Global Code (the Code) among market participants. We asked Roger Rutherford, COO of ParFX and a member of the ACI FX Committee who has been involved in the establishment of the Code from the outset, to tell us more about this initiative and to provide an update on the working groups the GFXC has created to focus on four priority areas: “cover and deal” trading activity, disclosures, buy-side outreach, and integration of the Code in the FX market.

What were the preliminary results of the survey and how has the market responded to them? 

The initial survey results indicate that the FX Global Code is beginning to take hold, with awareness and adoption increasing in the past 12 months. However, the job is far from done and there is still a long way to go to genuinely increase transparency in the FX market.

From our experience, we have seen greater levels of debate and discussion about the Code’s application between banks, trading platforms such as ParFX, vendors and clients. We have seen an uptick in interest from prospective clients, as our trading model is underpinned by a fair, equal and transparent trading environment. 

What conclusions did the Cover and Deal working group come to with respect to how the Code's good practice recommendations may apply in the context of cover and deal arrangements? What are your views?

ParFX is a neutral observer in this respect, however we believe passionately that it’s important this working group put disclosures and transparency at the forefront of cover and deal. This will ensure its findings are robust and help increase the adoption of its recommendations by market participants. 

Change is coming and the current direction of travel is towards openness and transparency. It’s vital that traders know not only the identity of their counterparty but also that counterparty’s trading intention, as they do on our platform. It provides clarity and allows them to truly analyse the behaviour of their liquidity provider.

What work has the Disclosures working group been doing to help establish voluntary reference tools for market participants who are developing, receiving, or reviewing disclosure documents? 

The disclosures working group is working to provide greater clarity around trading practices ranging from pricing to handling of confidential information. 

It’s clear that market participants will continue to face difficulties when trading anonymously on ECNs. Counterparties are unable to identify each other or understand their policies on last look, pricing and execution. This presents a challenge when conducting TCA or measuring best execution. 

It also goes against the spirit of the Code, which actively encourages greater communication and transparency around trading practices.

We have seen greater levels of debate and discussion about the Code’s application between banks, trading platforms, vendors and clients
We have seen greater levels of debate and discussion about the Code’s application between banks, trading platforms, vendors and clients

What steps are the Buy-Side Outreach working group looking to take to expand the GFXC's engagement in buy-side-focused industry events and raise awareness of the Code across the buy-side community? 

Eleven of the 30 largest asset managers have already signed up to the Code, so it’s a positive sign that the GFXC has announced a working group focusing on buy-side engagement.

Extensive engagement has already taken place in the form of face-to-face meetings, interaction with trade associations and surveys, and this is expected to continue in 2019.

In many ways, the buy-side will be amongst the biggest beneficiaries of the Code. Most of the principles now in place will improve how sell-side banks and brokers interact with them. As this message continues to be understood by the buy-side, we should expect the number of signatories to increase over the next 12 months. (See article overleaf)

In what ways are the results of the new survey likely to help shape the Embedding the Code working group's continued efforts to promote the embedding and integration of the Code into the fabric of the Global FX market? 

It’s difficult to gauge the impact on the Embedding the Code working group as we have only received the preliminary results so far. When we get definitive findings from the survey and the working groups, the next step will be to ensure institutions receive training on how the Code’s principles affect their day-to-day trading practices. Associations such as ACIFMA, which helped to develop the Code and has more than 10,000 members, can play a crucial role in this respect.

Leaders at individual institutions also need to take the initiative and show they are taking the Code seriously. If all 500+ institutions that have signed up to the Code encourage their customers to follow suit, we will see a rapid change in trading practices and widespread genuine transparency in the FX market.