FCA eyes tighter rules for unregulated FX spot market

FCA’s head of market policy says FX Global Code provides opportunity to establish common practice standards of market conduct.

The UK Financial Conduct Authority (FCA) is considering introducing rules for the FX spot markets, bringing it in line with other regulated markets.

The FCA’s head of markets policy, Edwin Schooling Latter, told delegates at a London-based conference that a policy to eliminate certain conducts in the FX spot market could be introduced.

Latter told delegates spot FX trading “sits in an interesting place on what we call our regulatory parameter.”

Most FX trading - is in formal terms - outside of the FCA’s remit, although the FX spot markets are regulated in cases of manipulation of prices and benchmarks.

Latter explained: “It does not mean that the FX spot market is not of acute interest to the FCA as a regulator.

“It does mean, however, that there is not such a well elaborated body of regulations and rules as there is, for example, in equity, fixed income or derivatives markets.”

He added that pre-hedging and then rejecting client orders through a ‘last look’ engine carries a clear risk of detriment to clients, but there is an opportunity to eliminate this conduct risk through the FX Global Code.

The conduct risk could be eliminated, “If the Code establishes strong safeguards against misuse of client information, and transparency meaningful enough to allow market discipline to work,” Latter said.

He also referred to conduct risk around mark-up and time-stamping practices and explained that the Global Code provides a good opportunity to establish “a common standard of good practice” in both of these areas.

“Market participants can reasonably expect the Code to be a key component of proper standards of market conduct,” Latter said.