At the same time, however, this situation is sub-optimal in terms of market-wide functioning: pricing may be inefficient, perhaps materially so, and other elements of the service offering fall short of best practice. Collective, market-wide action to improve competition and standards would benefit this firm and many others – raising all ships. But the firm itself feels powerless to drive that change by itself. It’s that missed opportunity that is ‘bad’, or perhaps better put, ‘sad’. The third and final stylised storyline is definitely ‘ugly’. It involves a large and regular buyside user of FX markets which chooses to operate through a single relationship bank, which also provides custodian services. It places all of its FX business with the bank to work through over an extended period. It has no 8  See for instance https://newsroom.nex.com/news/04092018/nex-markets-experiences-a-reduction-in-hold-times-and-reject-rates-as-aresult-of-the-fx-code-of-conduct, which shows that, for one of the platforms in Chart 4, hold times have fallen from 93 to 37 milliseconds since introduction of the Code, with 97% of trades with the top 10 liquidity providers now being filled at the original quote price. 9 https://codeforces.com/blog/entry/65002 8  All speeches are available online at www.bankofengland.co.uk/news/speeches  8  connections to other venues, does no material TCA, and receives no specific timestamping on its trades. Although it believes it makes no economic sense to vary its FX practices, in fact its trades are of a size, regularity and complexity that it would pay the client materially to shop around.

For heavily-traded currency pairs, our hypothetical FX trader is getting bid/ask spreads that are a fraction of a basis point for a $ trade, rising to a few basis points for a large trade. And she’s taking 5  See for instance https://www.bis.org/publ/mktc10.htm and https://www.marketfactory.com/whitepaper-why-does-fragmentationcontinue-to-increase-increasing-entropy-in-currency-markets/ 6 See for instance my predecessor’s speech on fast markets at https://www.bankofengland.co.uk//media/boe/files/speech/2017/keeping-up-with-fast-markets; or the recent ECB paper https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2300~68bda93b78.en.pdf. 7 https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/why-diverse-markets-need-diverse-talent-speech-by-andrew-hauser 7  All speeches are available online at www.bankofengland.co.uk/news/speeches  7  advantage of the changes in the market brought about by the Code: accessing so-called ‘Global Code pools’, and increasingly firm, or near-firm, pricing.8 Many of you here today will recognise aspects of this experience. But many won’t – and the reason for that is clear. Navigating complexity requires understanding, data, connectivity and computing power – and that can be a challenging combination. To give an extreme example: one of the large non-bank liquidity providers is said to have access to 42 petabytes of data storage.9 That’s more than 4,000 times what’s needed to hold the entire Library of Congress and would cost around $ a year from Amazon Web Services, at their most basic standard rate. If you need that sort of kit to scale the mountain, many will struggle to get to base camp. Of course that’s an extreme comparison. So let’s sketch a second storyline: that of a large to mid-tier buyside firm, for whom FX is an important, but by no means dominant part of its overall business.