FX Global Code of Conduct

The release of the final Global Code of Conduct (“Code”) on 25 May 2017 is a watershed moment for the foreign exchange (FX) market.

The FX market, which is a global decentralized market for the trading of currencies, is the largest market in the world in terms of trading volume, with turnover of more than $5 trillion a day. The Code was developed by the Foreign Exchange Working Group (“FXWG”) working under the auspices of the Markets Committee of the Bank for International Settlements (“BIS”). The Code was also created in partnership with a diverse Market Participants Group (MPG) from the private sector. A Global Foreign Exchange Committee, formed of public and private sector representatives, including central banks, will promote and maintain the principles.

The Code establishes a common set of 55 principles for good practice in the FX market, including ethics, transparency, governance, information sharing, electronic trading, algorithmic trading and prime brokerage. The FCA has expressly stated that they expect firms to be able to demonstrate adherence to such standards of market conduct. Our articles on the code are available here. Our software is designed with the Global Code in mind, and specifically allows users to demonstrate compliance with key provisions including the following:

1. Fair Mark-Up

Principle 14 of the FX Global Code sets out various requirements relating to application of mark-up by firms trading as principal with their clients, including maintaining policies and procedures such that “prices charged to clients are fair and reasonable considering applicable market conditions …”. In addition, firms should have in place “processes to monitor whether their Mark Up practices are consistent with their policies and procedures”.

The application allows users to evaluate prices proposed or charged to clients by comparing them against a broad, representative market data set sourced from multiple independent providers, aggregating as many sources as are available to provide reliable measures of mid at any point during the trading day. A combination of indicative quotes and anonymised trade data (i.e. actual executed prices) is utilised. Trades may also be compared against a range of benchmarks and take account of market conditions, and allows users to consistently test delivery using exception reports and intelligent management information.

2. Algorithmic Trading

Principle 18 of the FX Global Code states that market participants providing algorithmic trading or aggregation services to clients should disclose sufficient information to enable the client to evaluate the performance of the service, and clients of algorithmic trading providers should use such data and disclosed information to evaluate, on an ongoing basis, the appropriateness of the trading strategy to their execution strategy.

The application measures a wide array of parent and child algorithmic order performance metrics, including, inter alia, price, benchmark performance (across an array of benchmarks including Interval TWAP), spread costs, market impact, post-trade revaluations, signalling risk, speed, and implementation shortfall. The Trade Inspector screen allows users to drill down into the details of each child order. Moreover, the software allows large samples of algorithmic trades to be measured on a consistent basis, allowing statistically significant conclusions to be drawn.