Mitigating settlement risk, market transparency, and data quality made up the three key themes at the fore of the committee’s attention for the next iteration of the global code, confirmed Gerardo Garcia, GFXC chair and general director of central bank operations at Banco de México, speaking at a TradeTech FX US panel.
“The first [focus] is mitigating settlement risk. What we want to do in the global community is promote the adoption of payment versus payment and settlement methods or something similar – for example automated netting – or anything else which can significantly mitigate risks,” said Garcia.
In addition, another key aspect and priority for the Committee’s review was the shift to T+1, which Garcia explained may require a review of the code with regards to post-trade settlement processes.
Specifically, this could mean modifying the methodology by which the GFXC assesses and evaluates settlement risk in order for the Committee to get a better sense of what the actual notional amount truly subject to this settlement risk is.
The second issue relates to enhancing the transparency of FX transactions in order to allow every counterparty involved to understand clearly how entities are interacting.
“There has been some discussion with regards to transparency when the trade is internalised, so we also will be discussing how we can best promote transparency when you trade or when internalisation is being used,” added Garcia.
Related to this, is the third focus – FX data and the promotion of it’s good use. According to the panel, it is through making more information available that the transparency of the market will be enhanced.
The role of prime brokers and global custodians is also set to be addressed in this vein with an end goal of allowing market participants better access to data and ultimately, better execution.
Garcia further asserted that the industry itself is driving the review of the code, with more than 300 institutions having been surveyed to assess opinions around future inclusions.
Anna Nordstrom, head of the domestic and international markets functions in the markets group at Deferral Reserve Bank of New York, shared that the current reach of the FX global code extended to 1300 entities – including the top 15 asset managers globally.
Speaking to the increasing buy-side adoption of the code, Daniel Mitchell, vice president, senior portfolio manager, at RBC global asset management, highlighted that the firm had joined in order to “protect the interest of their clients,” with the code fitting into RBC’s shift towards a more global orientation.
He further added that adherence “projects the right image across the street […] it’s a firm-wide commitment and not solely the execution desk that needs to be involved.”
Nordstrom also highlighted the emergence of platforms offering liquidity pools that adhere to the code as a key indicator of how far things have come in the last few years.
Harri Vikstedt, senior policy director, financial markets department at Bank of Canada, explained that while previous iterations of the GFXC’s global FX code had previously been very granular and admittedly sell-side focused, it is now principles-based.
Specifically, the GFXC principles are a supplement to local law, rules and regulations, organised around six leading principles: Ethics, information sharing, governance, confirmation and settlement, execution, risk management and compliance.
“For this to really work it requires a cooperation from everybody – sell-side, buy-side, custodians, platforms, data providers and central banks as well. We’re all in this together, and it should be a shared responsibility,” said Mitchell.