Pre Global Code
Do not click this Link! It is a gateway to an earlier, less correct time when chain smoking dealers deliberately moved the pound with scant regard for the (not yet published) FX Global Code of Conduct Principle 12. The year was 1985. The video is a BBC documentary, Billion Dollar Day, that follows three dealers in the U.S., UK and Hong Kong over a 24 hour period. It’s cute – but don’t watch it!
I confess that I did show this video to a few fellow members of the BIS Market Participants’ Group (MPG) last year when we were developing the Code of Conduct jointly with the central banks’ Foreign Exchange Working Group. A couple of them looked embarrassed when watching the video. I told them that it should be me that is embarrassed as they are younger and I actually remember those days.
There were certainly eccentric characters back then. I recall one particular dealer who used to wander around the room exclaiming that “it’s too quiet – what we need is a good war and a few sunk ships!” Unfortunately he received his wish with the Falklands’ War. Another Chief Dealer had a bat made of foam that would have necessitated an immediate visit to HR these days.
We risk chronological snobbery when we consider the past. In reality, we are each a child of our time. Values change and each generation should, and usually does, demand higher standards and greater clarity.
The Global Code: Year 1
The Global Code has certainly responded to that need for higher standards and greater clarity. Adoption has exceeded all expectations. A report issued by GFXC earlier this week highlights strong adoption with over 300 institutions signing Statements of Commitment to the code. There is now a “register of registers” where you can see the list of those institutions that have committed to the Code (including MarketFactory). Institutions are embedding the code in their practices. The Code is becoming an essential element of the fabric of the FX market.
One of the most impressive aspects of the Code is something David Puth of CLS, former head of the MPG and Vice-Chairman of the Global Foreign Exchange Committee (GFXC), has emphasised. It is how the FX market came together to form a unique public-private partnership that developed the Code. It was indeed very impressive and a remarkably efficient process.
Furthermore the work continues. This week the GFXC published an additional negative example for principle 11, pre-hedging. There is an active working group on “cover and deal” arrangements, a workflow that is used increasingly by some market makers, acting as principals, to utilise pricing from other market makers. Another working group is discussing disclosures provided by market makers and anonymous platforms. One output may be a checklist of what you may wish to ask your market maker.
Challenges remain. Further adoption in some sectors is required, most particularly the buy side which is surely the most numerous category. My own observation is that many buy-side firms have been resource constrained due to recent regulatory requirements such as MiFID II. Many funds trade multiple asset classes and have a backlog of compliance work that competes with FX.
The FX market, an enormousiy diverse, geographically disparate market, has shown it can come together to address its issues. I feel privileged to have had the opportunity to contribute as a member of the MPG and co-chair of the Examples Working Group and am pleased that MarketFactory has played a role. David Puth has now passed the baton to GFXC Chair Simon Potter of the New York Federal Reserve Bank, and Vice-Chairs Adrian Bohler of BNP Paribas and Akira Hoshino of Bank of Tokyo Mitsubishi.
We look forward to supporting them as the code evolves.