Christopher Kent: Opening panel remarks - FX Week Australia
Opening panel remarks by Mr Christopher Kent, Assistant Governor (Financial Markets) of the
Reserve Bank of Australia, at the FX Week Australia, Sydney, 27 March 2019.
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Thanks to FX Week for the invitation to discuss the FX Global Code.
When the FX Global Code was launched in 2017, the aim was that it would promote a robust,
fair, liquid and transparent wholesale market. To do that, the Code sets out principles of good
practice.
As awareness of the Code builds and more market participants commit to adhering to its
principles, standards will no doubt improve across the market. The Code has already gained
significant traction in the marketplace.
A recent survey of market participants by the Global Foreign Exchange Committee (GFXC)
confirmed that awareness of the Code within the industry was now very high. Almost all of those
surveyed had read part or all of the Code. Furthermore, the vast majority of respondents
indicated that they expected or required their counterparties to adhere to the Code. Globally,
there are now more than 800 firms that have signed Statements of Commitment to the Code and
lodged them on public registers.
So what do we need to do from here? Globally, it is clear that the sell-side have embraced the
Code. What appears to be missing is comparable take-up from the buy side. This is as apparent
in Australia as it is in other jurisdictions. To some extent, this could be just a lag as buy-side
participants take longer to complete the process of reviewing the Code and aligning their
practices to it. Encouragingly, the GFXC's survey showed that while current take-up from the
buy-side was low, many of the buy-side respondents indicated that they did intend to adhere and
some of those had already begun the process.
More broadly, though, the GFXC is conscious that greater take-up from the buy-side will be
needed and the GFXC is actively looking at ways to achieve that end.
For those in the audience from the buy-side the question I would put to you is: can you justify to
your stakeholders - whether they are your investors (if you are a fund manager) or shareholders
(if you are a business) - why you have not adopted a set of principles which represent industry
best practice when you are managing their money?
The widespread adoption of the Code will benefit everyone involved in the FX industry, regardless
of where you sit in the market.
It is worth noting the Code is principles-based rather than rules-based. This is to encourage
market participants to think about their practices and how their activities comply with the
principles, rather than working narrowly to a set of rules. The Code's application is also designed
to be proportional to the FX business that a participant is involved in. Clearly, there are some
principles that aren't directly relevant to the buy-side. Most obvious are those principles that deal
with handling client orders or client mark ups.
Ultimately, the Code's principles are there to give market participants confidence in how the
market is operating. There are numerous ways the Code can promote confidence. It can help to
improve price competition as liquidity providers' pricing practices become more transparent to
clients. Market participants can also be more confident that good practices around information
handling will result in a more level playing field for all.
So I encourage those of you who have yet to familiarise yourselves with the Code to do so. And
then consider adopting it. It is a useful tool in many ways, not just to enhance your own practices
but, for those on the buy side to gauge what you should expect from your brokers in terms of
their execution, the type of market colour they provide and their market practices more generally.
Finally, I should mention the work of the Australian Foreign Exchange Committee (AFXC). This
committee contributes to maintaining the Code and promoting it within the local market. Our
membership comprises a diverse range of market participants, including those from both the
sell-side and buy-side, and also those that provide infrastructure to the market, such as the
platforms. So if you are interested to know more about the Code, you could contact any one of
the members and ask about their own experiences with the Code.