5 These types of approaches can bring a wide array of  4  Some examples of best practices in these sectors include: the National Education Association, which develops pedagogical standards based on its research; the Best Manufacturing Practices Center of Excellence, which helps businesses identify, research, and promote exceptional manufacturing practices, methods, and procedures; and the Food and Agriculture Organization of the United Nations, which develops and shares “good agriculture practices” for a range of commodities. 5  During the development of the first phase of the BIS FX Global Code, a large number of detailed comments and useful suggestions were received from market participants that were integral to the drafting process. In April 2015, the TMPG solicited comments on its proposed best practice updates related to automated trading  2  BIS central bankers’ speeches  diverse perspectives to bear on the design of best practices, helping to ensure the best practices developed are more effective. Central banks’ role in supporting best practices Central banks have an interest in ensuring well-functioning markets – as market participants and for efficient transmission of monetary policy. We also have a stake in enhancing the strength and stability of the financial system as a whole. Moreover, central banks can play an important role in the creation of effective best practices by serving as a convening body for market participants, by signaling the importance of best practice efforts to the market, and by encouraging the inclusion of a diverse set of market segments in the development process.

As an example, in the FX market, concerns were raised about the integrity of FX rate benchmarks, particularly around incentives for potential market malpractice linked to the structure of trading around the benchmark fixings, such as the WM/Reuters 4pm London fix. The WM/Reuters fix is one of the long-standing and dominant benchmarks used in the market. It was structured in a way that created an incentive for dealers to “trade ahead” of clients at the fix and also an opportunity for them to influence exchange rates. The FSB’s FX benchmark working group produced recommendations that called for a change in methodology around the structure of the fix and changes in firms’ trading behavior at the fix. Guidance suggested that firms establish and enforce internal guidelines and procedures for collecting and executing fixing orders, such as separate processes for handling such orders. In addition, the group recommended that transactions conducted at to-be-determined levels be priced in a manner consistent with the risk borne in accepting such transactions through such methods as applying a bid-offer spread or a direct fee. The Global Preamble, published by the FXC in coordination with other FX committees, supported and reinforced the FSB’s FX benchmark recommendations. 15, 16 Since the release of the recommendations, a number of changes have been made. For example, there is a new structure for certain FX benchmark rates, including the WM/Reuters fix. Many dealers have changed how they provide FX benchmark execution, with a growing emphasis on the use of algorithmic execution and a more transparent pricing structure.