Buy-side calls on brokers to reveal more on why FX trades fail

The Investment Association has proposed a more standardised format for FX trade rejections, as brokers currently have no consistent way to communicate this with the buy-side.

Asset managers are looking to find out more from their brokers when foreign exchanges trades are unsuccessful through a new proposal from the UK’s buy-side trade body, aimed at simplifying the process for greater transparency. 

Under the proposal, the Investment Association said that when a request by an investment manager to trade on FX markets is not executed, brokers, dealers and platforms should use 13 high-level reject code categories. 

The code categories will provide the buy-side with more specific information on why a trade failed to execute quickly and consistently, allowing investment firms to take action based on the cause of rejection to reduce further poor performance. 

“Currently brokers on the FX markets have no consistent way to communicate why trades aren’t successful,” said Galina Dimitrova, director for investment and capital markets at the Investment Association. “Our new reject code categories help ensure the reasons for trade rejections can be analysed rapidly, so steps can be taken to put right any errors and minimise potential disadvantage to savers and investors.”

The sell-side is being asked to match up their existing reject codes to the 13 new high-level reject code categories and report to buy-side clients by the end of the first quarter this year. The proposal was produced in consultation with the Investment Association’s members, and it is in keeping with the Global FX Code of Conduct

Last month, Bank for International Settlements (BIS) markets committee took aim at larger asset managers for failing to adopt the FX Global Code of Conduct, which outlines a series of principles to address various issues in foreign exchange markets around ethics, governances, execution, risk management and settlement.

Some of the world’s biggest asset managers, including Vanguard, Allianz Global Investors, BNY Mellon Investment Management, Aberdeen Standard Investments and AXA Investment Managers, have still not agreed to comply with the FX Global Code of Conduct, which came into force in 2017.

The unclear business case for compliance, alongside lack of relevance and concerns that the Code does not go far enough to curb activities such as last look practices and disclosures, have been highlighted as the main issues.