More participants in the foreign exchange (forex) market, particularly large buy-side participants such as asset management firms, need to adopt the FX Global Code, the Bank for International Settlements (BIS) Markets Committee said this Thursday.
In an open letter to Guy Debelle, Chair of the Global Foreign Exchange Committee (GFXC), Markets Committee Chair Jacqueline Loh said that whilst many players within the FX market have adopted the code, adoption has lagged for some important market segments.
“For the Code to be successful, it is vital that market participants from all segments recognise that adherence to the Code is an implicit part of their participation in the global FX market,” Loh wrote in the letter.
FX Global Code needs further adoption
The FX Global Code was launched in 2017 and outlines a set of good market practices for the global forex market, which has a turnover of more than $6.6 trillion a day. Even regulators, such as the Financial Conduct Authority (FCA), have recognized the code.
The open letter comes after the Markets Committee did an assessment of the Code’s effectiveness, at the request of Governors of the BIS Global Economy Meeting (GEM). In the letter, the Committee recommended additional ways to encourage adoption.
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The Markets Committee is a forum for senior central bank officials, where they monitor developments in financial markets together and assess their implications for market functioning and the market operations of central banks.
“To date, only a fraction of the largest buy-side participants, such as asset management firms, have adopted the Code. As their share in global FX trading increases further, it is important that they adopt the Code to ensure a fair and effective FX market for all,” the letter said.
“To that end, while the GFXC has been actively encouraging buy-side adoption through various initiatives, it could explore additional ways to further embed the Code, eg to mobilise public authorities and market participants to make the case for signing up at the most senior levels of buy-side firms. The GFXC could also explore enhancements of existing adherence mechanisms, such as by providing increased clarity on the principle of proportionality.”
BIS Committee asks for Code to be strengthened
Furthermore, the Committee urged the GFKC to strengthen the Code. This could be achieved by improving the transparency and disclosure of trading practices on anonymous trading and algorithmic trading platforms. The recommendations from the Committee will be part of the GFXC’s first review of the Code, in 2020.
GEM Chair Mark Carney said: “Since the Code’s launch, a lot has been accomplished. It has become a benchmark for FX-related issues and has helped to improve standards of behaviour in FX markets. The GEM Governors look forward to the GFXC’s review, which will help ensure the Code remains relevant and dynamic.”