Exclusive: A Year into the FX Global Code with ParFX COO Roger Rutherford

After firms have had a year to commit to the code not all of them have signed up

Roger Rutherford
Roger Rutherford, COO of ParFX

It has been a year since the announcement by the Bank of International Settlements that it will introduce a new voluntary practice for market participants in the foreign exchange trading industry.

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With the implementation of the FX Global Code of Conduct, firms are committing to look after the interests of their clients. The process of all market participants eventually signing up to the code has been a long one as the commitment is voluntary. To get a complete grasp of the market and the implementation of the Global Code of Conduct into the industry, Finance Magnates spoke to the COO of ParFX, Roger Rutherford.

Not a Hard Deadline

How do you view the upcoming deadline for companies to sign up to the code?

In my view, the upcoming deadline is somewhat a checkpoint for the industry – an opportunity to reflect on progress made over the past year and discuss what more needs to be done maintain adoption across the industry – rather than a final cut-off point for institutions to sign up.

We were one of the first to sign a statement of commitment to the Code and 12 months on from its introduction; no other platform epitomizes its principles like ParFX. We have been underpinned by fairness, equality, and transparency since we launched in 2013.

As a result, we are very closely aligned with the Code; we treat all participants equally and promote firm pricing, transparency, and good trading behavior. We, therefore, welcome the Code’s focus on instilling these principles across the entire FX market as they promote a robust, fair, open, liquid and transparent FX market.

How many institutions have signed up? Are you happy with progress to date?

While it’s hard to track the exact number of sign-ups due to the lack of a centralized register, it’s reported that over 180 institutions have publicly committed to date. We are likely to see many more sign-ups over the course of the year, but I think the real success of the Code has been the dialogue it has kick-started around ethical trading behavior across the globe.

In the past 12 months, we have seen extensive debate and conversation about controversial practices such as anonymous trading and last look and the fact these are now being spoken about out in the open is hugely positive for the FX market.

‘A Small Minority Not Ready for Change’

Why have some been slow to sign up and others, not at all?

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Anecdotally, I can tell you that there is a desire to sign up to the Code and be seen to operate ethically. Some may not yet have signed up, but I’m aware of institutions that have begun amending their terms and conditions and communicating more openly to ensure their clients are fully apprised of their operating practices, which is a positive step forward. 

However, there is also a small minority that either is not ready to change or do not benefit from changing their practices. I hope this will change as the Global Foreign Exchange Committee (GFXC), which oversees the development of the Code, explores areas of the FX market where greater transparency is necessary, such as opaque pricing, execution on electronic trading platforms and ‘cover-and-deal.’

Market participants will continue to face difficulties if they trade anonymously on ECNs. Counterparties are unable to identify each other or understand their policies on last look, pricing, and execution, and introduces a challenge when conducting TCA or being able to demonstrate the best execution. This goes against the spirit of the Code, which actively encourages greater transparency and clarity around trading practices.

Subject to the outcome of the working groups, there is a very real possibility that any platform or counterparty continuing to facilitate anonymous trading practices will come under the microscope.

I’m sure there are some institutions in the FX industry that are awaiting the findings of these working groups before they commit to the Code. When these findings are released, we expect an acceleration of market participants committing to Code.

Risks to Business

What do you think will happen those that don’t sign up?

Several central banks, including the European Central Bank and the Reserve Bank of Australia, have said they would only maintain counterparty relationships with firms that commit to the Code. As a result, those that don’t sign up, or at the very least don’t start amending their practices, may lose out on business. This is a real-life example, and it will be interesting to see how others follow suit

How do you think the Code can remain relevant for the rest of 2018?

As the Code evolves, and more participants, vendors, and platforms sign up and operate according to its guidelines, ethics, and conduct will increasingly become front and center for everyone across the front-office, back-office and compliance departments. 

This focus on ethical trading behavior, coupled with increasing transparency, could well be the golden bullet to restore confidence in the FX market.

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