Bank of England commits to FX Global Code

Maria Nikolova

In the UK, the FX Global Code supersedes existing guidance for participants in FX markets previously provided by the Non-investment Products Code.

The Bank of England has become the latest financial institution to throw its weight behind the FX Global Code. Today, the Bank issued Statements of Commitment to a number of Codes, including the FX Global Code, the UK Money Markets Code and Global Precious Metals Code.

These Statements of Commitment cover the Bank’s activities in these markets, including when acting as agent for HM Treasury to manage the UK official reserves in the Exchange Equalisation Account (the EEA).

Commenting on the statements, HM Treasury said it acknowledges that the Codes represent a set of principles recognised as good practice in these markets and fully supports their widespread adoption by market participants. This will help to promote the integrity and effective functioning of these respective markets.

This work follows the Fair and Effective Markets Review which was launched by the Chancellor of the Exchequer and the Governor of the Bank of England in June 2014 to reinforce confidence in the wholesale Fixed Income, Currency and Commodities (FICC) markets after a wave of serious misconduct seen in recent years. This is also seen to influence the international debate on trading practices.

The FEMR final report published in June 2015 by HM Treasury, the Bank of England and the Financial Conduct Authority (FCA) included a recommendation for an international action to raise the standards in global FICC markets by agreeing a new single global FX code.

The FX Global Code was first published in May 2017 providing principles of good practice for Forex market participants. The Code aims to promote the integrity and effective functioning of the wholesale FX market. In the UK, the FX Global Code supersedes and updates existing guidance for participants in FX markets previously provided by the Non-investment Products (NIPs) Code. Guidance on other markets covered by the NIPS Code has been superseded by the UK Money Markets Code published in April 2017, endorsed by the Bank of England’s Money Markets Committee (MMC); and by the Global Precious Metals Code published in May 2017 by the London Bullion Market Association (LBMA).

The FX Global Code has been amended and revised since its initial publication. In December 2017, the GFXC decided to revise Principle 17 of the FX Global Code which concerns “Last Look” practices.

Principle 17, as revised, provides that Market Participants should not undertake trading activity that utilises information from the Client’s trade request during the last look window. However, the principle allows “last look” in certain situation. It states that “If utilised, last look should be a risk control mechanism used in order to verify validity and/or price. The validity check should be intended to confirm that the transaction details contained in the request to trade are appropriate from an operational perspective and there is sufficient available credit to enter into the transaction contemplated by the trade request. The price check should be intended to confirm whether the price at which the trade request was made remains consistent with the current price that would be available to the Client”.

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