New forex global code in London aims to restore confidence

New Zealand's central bank on Friday said it would follow a new global code of conduct for foreign exchange markets created by the Bank for International Settlements and regulators urged traders to do the same. "However, I think we are in a position to begin to restore confidence, public trust and promote the effective functioning of the wholesale FX market, and ultimately build a better marketplace".

With this in mind, the BIS has provided a draft Statement of Commitment for firms to publicly demonstrate that they are adhering to the code's principles, as the bank believes that more firms to adhere to the code if they see their peers doing so.

David Puth, a fellow member of the working group representing market participants and head of settlement bank CLS, told journalists at a press briefing to launch the Code: "Over the course of the next 12 months, we will look for all wholesale market participants to adopt the principles".

NEX Markets played an active role in the development of the Code, with Darryl Hooker, Global Head of Spot and Metals and Head of FX EMEA, representing NEX on the Market Participants Group (MPG), a working group for those in the private sector engaged in developing the Code.

Regulators and leading financial firms launched a new code of conduct for global currency trading on Thursday, including measures aimed at ensuring its universal adoption by the world's major financial institutions. Last look liquidity in the foreign exchange market gives price makers the right to reject or delay an order before it is filled and is problematic in electronic trading as it is unclear whether an order will get filled at a given price quote.

Transparency around last look was one of the code's core principles, which started with a call on market participants to strive for the "highest ethical standards". A Global Foreign Exchange Committee, formed of public and private sector representatives, will promote and maintain the principles.

The code said that banks should be transparent about how they use last look, and that the practice should not be used for "information gathering with no intention to accept the client's request to trade". In addition, central banks will also comply with the code and will not deal with counterparties who have not made a statement.

The Code does not impose legal or regulatory obligations on market participants or substitute for regulation, but is meant to supplement local laws, rules and regulation by identifying global good practices and processes.

  • Zachary Reyes