IGTA Journal - Autum 2020

to regularly assess whether executing at those times suits their requirements. Operation of FX markets More broadly, the Covid lockdowns presented major operational challenges to FX market participants. These challenges were exacerbated by the market volatility, but even as market conditions stabilised, many of the operational challenges remained. However, the FX industry generally has been able to meet these challenges. A recent report issued by the GFXC summarised the experiences of both buy-side and sell-side market participants throughout this time. Broadly speaking, electronic trading proved effective and reliable. It is likely that the Covid period will have only furthered the industry’s shift toward electronic trading. This includes the greater use of execution algorithms in many markets. From the GFXC’s perspective, the recent period has highlighted the importance of having common standards of industry practice. The abrupt change in market conditions that we witnessed this year also underscored the importance of transparency. As spreads widened, trade sizes were reduced and ‘last look’ rejection rates rose, clients needed to understand the implications of this for their activities. Reviewof the FX Global Code While the Code has certainly proven its value since it was introduced, the FX market is constantly evolving. When the Code was launched in 2017, the GFXC committed to undertaking a review of the Code every three years to ensure that its guidance remains appropriate and is contributing to an effectively functioning market. Wide-ranging feedback obtained from market participants last year confirmed that the Code does remain fit for purpose. Nevertheless, there were a few key areas where closer review was warranted. I would like to provide an update on some of those focus areas today. Originally, we had intended to conclude the review of the Code by this December, but following the outbreak of Covid, we needed to pause our work for several months. That work has now been resumed and is on track for completion by mid 2021. The first focus area for the GFXC is getting greater adherence and commitment to the Code from the buy-side . Certainly, a lot of progress has been made over the past three years. For example, of the top 30 asset managers globally, more than half have now signed Statements of Commitment to the Code, including Blackrock, Fidelity, SSGA. There is, however, scope for further progress. In our liaison with the industry, several possible reasons have been suggested for the slower rate of take up from buy-side. Firstly, the Code has 55 principles and there is a perception that many of them are only relevant to the sell-side. Secondly, the buy-side hasn’t had the same incentive to sign up to the Code as the sell-side. The sell-side has faced pressure from their regulators and their customers to demonstrate their commitment. Peer pressure has also played a role there as well. Finally, with constrained resources, many buy-side have other priorities to focus on. To overcome some of these issues, one question that has been asked is whether a buy-side and simpler version of the Code could be developed. However, in considering this issue at its recent meeting, the GFXC’s firm conclusion was that a single Code remains the best way of ensuring there is a common market standard that constitutes good practice. The diversity and increasing complexity of the FX market means that it is not always possible to assign clear roles to market participants, such as liquidity providers and consumers. Relatedly, some buy-side firms will have a larger and more complex involvement with the FX market than many sell-side banks. 3 2 / 4 BIS central bankers' speeches IGTA eJournal | Autumn 2020 | 8