Stephonomics: Regulators Can’t Really Prevent Banks’ FX Traders from Talking

A dealer knows what information is confidential. Let’s face it, each dealer is subject to 9,000 compliance courses over his

A recent article revealed that Central Banks have agreed that banks need to prevent traders from sharing market information. The new 8 page “global code of conduct” bans traditional slang usages and gives dealers more information on what they can and cannot say about the world’s biggest financial market.

The foreign exchange committee, run by all of the world’s major central banks, will sit in as a global guide -on top of existing codes- and instruct asset managers to work harder to ensure they are getting the best deal they can on currency transactions. FX market participants are advised to apply ‘high level principles’ set out in the documents.

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Two years of regulatory investigations have led to several billion dollars in fines for banks and have squashed the constant chatter on a market keen on relationship building. The code seeks to categorize confidential information and provide guidance on what dealers can say to each other about the market – and around fixes in particular.

It is acceptable to share a view on the general state of the market and its trends, but it should be adequately aggregated and anonymized.

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Let’s take a closer look at some of these statements, starting with telling dealers what they can or cannot say. Really? A dealer knows what information is confidential and what isn’t. Let’s face it, each dealer is subject to 9,000 compliance courses over his career, which offer nothing other than saying ‘use common sense’ and a feebly formulated multiple choice test that my Golden Retriever could pass. That being said, if a fellow trader says ‘I hear there is a seller around the fix’ it doesn’t guarantee a profit or a bad rate. Next they’ll instruct asset managers to work harder to insure they get the best deal they can on every currency transactions.

Moving on, they mention that the market is keen on ‘relationship building and conversations on phones, IN BARS, and over electronic chats. In bars? Is this the 80’s or 90’s? It’s 2015, and while I cannot say dealers do not go out once in a while, most of them go home to their family and kids or to the gym after work. Heaven forbid we build relationships. That has got to stop! Bars? Really now!

Lastly, they say that it is acceptable to share a view on the general state of the market and trends. HOWEVER, any market color should be sufficiently aggregated and anonymized so as not to disclose FX trading information. “Hey Bob, I hear there is a seller of euros around the fix but it is definitely, positively, without question not me.” There you go, sufficiently anonymized.

Would the following conversation between two traders be within the new codes’ guidelines? – –“Hey Theodore, have you heard anything interesting going on around the fix? I hear some chatter about a seller?’-“No Alvin, I haven’t heard anything.”-” Okay, Theodore, I hope your wife’s right foot feels better, and good luck with the new car.” The centrals will question this vehemently because everyone knows that by mentioning his wife’s right foot, that ‘right’ means to buy; and if her car is a European car, well clearly he is buying euros at the fixing time. Let’s fine the banks a couple of billion just to be sure.

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