Traders warn buy side must embrace the FX Code too

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Adoption has continued to increase since then, and all of the top 10 FX banks from the 2017 Euromoney survey have now signed up. But some practitioners are concerned that adherence is not consistent across the whole market and more should be done to drive buy-side adoption.

“Enforcing the code could be challenging, as institutions have committed to it at different organizational levels and it needs to be enforced consistently across the buy side as well as the sell side. We are committed to its success and to making sure it is widely adopted and evolves without the need for it to become regulation,” says Sean Comer, global chief operating officer for foreign exchange and commodities at HSBC.


Adherence to the code’s 55 principles was never expected to be instantaneous and it was inevitable that some organizations would need longer than others to comb through the layers of their business and ensure they were ready to sign a public statement.

But the principles are not intended to apply to banks alone and questions have been raised over whether appropriate measures have been put in place to incentivize buy-side firms to apply the code to their FX operations. Participation on trading platforms or key industry groups, for example, could be contingent upon committing to the code, but such measures have not yet been put in place.

Chris Purves, UBS

“I would expect every bank active in FX to have signed up to the Code, but it is still not clear how widely it will be adopted on the buy side,” says Chris Purves, head of FX, rates and credit strategic development lab at UBS. “There is no obvious mechanism to incentivize buy-side adherence and there is a cost to compliance that individual firms would have to bear. But the code was intended to promote a level playing field across the market, so we would like to see greater attention paid to this.”

Officials on the GFXC remain optimistic, however. “We are pleased with the level of adoption of the code and continue to see strong evidence that market participants are embedding the principles into all aspects of market practice,” says David Puth, vice-chair of the GFXC and chief executive of CLS.

While the statement of commitment framework is intended to increase transparency, some institutions have posted their statements to multiple registers, making it more difficult to track adherence. The GFXC is developing a global index of registers, which it expects to launch ahead of its next meeting in June.

The speed of adoption among top-tier institutions has varied, reflecting the fact that every institution has been through its own unique processes to apply the code to the business. Citi, for example, signed its commitment on May 25, 2017 – the day the code was published – while others including JPMorgan, Deutsche Bank and Barclays have only signed more recently.

“The FX Global Code was the culmination of a long journey, which for us started in 2014 when we first looked to develop a framework for conduct risk management. By the time the text was issued last year, we had already embedded key conduct principles into our business and we felt confident to sign the code immediately,” says Nadir Mahmud, global head of FX and local markets at Citi.


For most institutions training is likely to have been a key component of adherence, as staff need to be fully versed in what constitutes acceptable practice when executing orders and communicating with clients.

“As part of our remediation and implementation of the code, we have spent a huge amount of time in trader and sales-based training sessions to look at the rules, educate staff on how business should be conducted, what is acceptable and what will not be tolerated,” says HSBC’s Comer.

The GFXC has identified three distinct areas of market practice that merit further study and consideration. Working groups have been established to consider ‘cover and deal’ trading activity in the last look window, the role of disclosures in establishing clarity around trading practices and negative pre-hedging activity. Some participants feel there are still opportunities for inappropriate conduct that must be addressed in due course.

“Use of rejected order information is a big issue in the market because it is simply not ethical,” says Zar Amrolia, co-chief executive of XTX Markets. “We know some firms do use that information and would like to see this resolved as part of the further evolution of the code, as well as minimum standards of disclosure to make key practices clearer to the buy side.”