Guy Debelle: Global Code of Conduct for the Foreign Exchange Market -
Phase 1
Opening remarks by Mr Guy Debelle, Assistant Governor (Financial Markets) of the Reserve
Bank of Australia, at the Launch of Phase 1 of the Global Code of Conduct for the Foreign
Exchange Market, New York City, 26 May 2016.
* * *
I am very pleased to launch Phase 1 of the Global Code of Conduct for the Foreign
Exchange Market. It has taken a concerted effort by a dedicated group of people, working on
top of their normal responsibilities, to get us to this point today.
Before talking about the material we have put out today, let me remind you why this work is
occurring. As I have stated on previous occasions, the foreign exchange (FX) industry has
suffered from a lack of trust in its functioning. This lack of trust has been evident both
between participants in the market, but at least as importantly, between the public and the
market. The market needs to rebuild that trust, so that participants and the public have much
greater confidence that the market is functioning appropriately.
A well-functioning foreign exchange market is very much in the interest of all market
participants. This clearly includes central banks, both in their own role as market participants
but also as the exchange rate is an important channel of monetary policy transmission. In a
globalised world, the foreign exchange market is one of the most vital parts of the financial
plumbing.
The Global Code sets out global principles of good practice in the foreign exchange market
to provide a common set of guidance to the market, including in areas where there is a
degree of uncertainty about what sort of practices are acceptable, and what are not. This
should help to restore confidence and promote the effective functioning of the wholesale FX
market.
To that end, one of the guiding principles underpinning our work is that the Code should
promote a robust, fair, liquid, open, and transparent market. A diverse set of buyers and
sellers, supported by resilient infrastructure, should be able to confidently and effectively
transact at competitive prices that reflect available market information and in a manner that
conforms to acceptable standards of behaviour.
The work to develop the Global Code commenced in May last year, when the Bank for
International Settlements (BIS) Governors commissioned a working group of the Markets
Committee of the BIS to facilitate the establishment of a single global code of conduct for the
wholesale FX market and to come up with mechanisms to promote greater adherence to the
code.1
There are two important points worth highlighting: first, it's a single code for the whole
industry and second, it's a global code. It's intended to cover all of the wholesale FX industry.
This is not a code of conduct for just the sell side. It is there for the sell side, the buy side,
non-bank participants and the platforms; its breadth is both across the globe and across the
whole structure of the industry. The Code is intended to apply to all aspects of the wholesale
foreign exchange market.
I am chairing this work, with Simon Potter of the Federal Reserve Bank of New York leading
the work on developing the Code and Chris Salmon of the Bank of England leading the
adherence work. Our Working Group comprises representatives of the central banks of all
the major FX centres in both advanced and emerging economies, drawing on the
membership of the Markets Committee which is comprised of heads of the market operations
areas of the 15 major currency areas. Given our roles, we are all very much interested in the
effective functioning of the FX market. Again, it is very much a global effort reflecting the
global nature of the foreign exchange market.
This work is also very much a public sector-private sector partnership. In that regard, we are
being ably and vigorously supported in this work by a group of market participants, chaired
by David Puth, CEO of CLS. The group contains people from all around the world, on both
the buy side, including corporates and asset managers, and the sell side, along with trading
platforms, ECNs and non-bank participants, drawing from the various Foreign Exchange
Committees (FXCs) and beyond. Hence all parts of the market are being involved in the
drafting of the Code to make sure all perspectives and insights are heard and appropriately
reflected. At the global meeting of the Foreign Exchange Committees yesterday, the eight
regional FXCs unanimously endorsed the first phase of the Code.
At the outset we decided to split the topics we intend to cover in the Code into two parts. This
first phase covers areas such as ethics, information sharing, aspects of execution and
confirmation and settlement. The second phase will cover further aspects of execution
including e-trading and platforms, prime brokerage, as well as governance, and risk
management and compliance. We intend that the second phase will be completed in twelve
months, such that the full Code can be published in May 2017.
One factor influencing our choice of which topics to cover in the first phase was our
assessment of what issues the market was looking for clarity on sooner rather than later. We
have attempted to provide greater clarity on issues such as information sharing and order
handling in the document released today.
Alongside drafting the Code, we have also been devoting considerable time and effort to
thinking about how to ensure widespread adoption of the Global Code by market
participants. Clearly, that has been an issue with the various existing codes that have been in
place in a number of markets over many years. It is evident that they were ignored on
occasion, wilfully or otherwise.
As I said earlier, we are working with the industry to produce a principles-based code of
conduct rather than a set of prescriptive regulatory standards. It will not impose legal or
regulatory obligations on market participants, nor will it supplant existing regulatory standards
or expectations. But we do expect the principles in the Code to be understood and adopted
across the entire FX market.
So we are setting out today our overall approach to adherence to the Code and we intend to
work closely with market participants in the coming year to facilitate the development of
market-based mechanisms which demonstrably embed the Global Code within firms' culture
and practices. These mechanisms need to be sensitive to existing law and regulation and to
the diverse nature of FX markets globally. Hence a 'one size fits all' approach to adherence
would not be appropriate. We need to strike the right balance between respecting the
existing diversity across different markets, and establishing globally consistent and effective
adherence mechanisms.
The success of the Global Code in promoting integrity and restoring confidence in the
wholesale FX market lies in the hands of its participants. That is why the Global FXCs have
issued today a joint statement of support making clear their intention for the Global Code to
become an integral part of the wholesale FX market.
Furthermore the BIS central banks are today signalling their commitment by announcing that
they themselves will follow the Code, and that they expect that their counterparties will do so
too.