IGTA Journal - Autum 2020

From the outset, the GFXC has emphasised that the Code should be applied by each market participant in a manner that is proportionate to the nature of their engagement in the market. It was envisaged that the larger, more complex and sophisticated an institution’s FX activities are, that institution should have undertaken a more comprehensive and detailed internal exercise to ensure its adherence to the Code’s principles. The GFXC will develop additional guidance to assist firms in identifying those principles of the Code that are the most appropriate for them to evaluate when aligning their practices with the Code. This will complement the existing material that is already available on the GFXC’s website, including case studies of a variety of buy-side firms that have aligned their practices to the Code. Another priority for the Code review is to provide further guidance around certain trading practices , in particular last look and pre-hedging. It is not necessarily the case that the GFXC will amend the existing principles of the Code dealing with these practices. This may happen, but we are certainly aiming to provide guidance material that provides greater clarity about how these practices are used and what the relevant considerations are for market participants. There will always be some controversy attached to these practices, so it is important that they are transparent and well understood. One important means for providing transparency in the FX market is the disclosures made by sell-side participants. In the GFXC’s surveys of the industry, many market participants – especially from the buy-side – still consider the disclosures around certain trading practices to be poor. And it is the areas of pre-hedging and last look that are generally of most concern. More broadly, the aim of the GFXC has been to ensure that market participants have easily accessible and understandable information on how their trades are handled, allowing them to make informed decisions. While there has been progress in this area, the Committee’s view is that the availability and adequacy of some elements of disclosures remains an issue. The disclosures have to be readable and have meaningful content. In part, it can be the greater volume of disclosure information that is being made available is itself proving challenging for market participants to comprehend and evaluate. Several different sets of disclosures can be produced by the one entity, with some publically available and others provided bilaterally, depending on the intended purpose of the material. Across counterparties, disclosure information is often provided in an inconsistent manner with varied levels of detail. Disclosure documents are also reviewed and updated at different times by different counterparties, and there is no central repository of multiple firms’ disclosures. The GFXC is aiming to develop solutions that will address issues in comparing information across different disclosure documents and facilitate access to disclosure information. The GFXC is also considering reviewing the Code’s principles in light of the ongoing adoption o f algorithmic execution (‘algos’) in the FX market. It is estimated that between 10 and 20 per cent of FX spot trading globally is accounted for by execution algos. Usage of these algos can improve market functioning but they also introduce risks. So as elsewhere, the issue is how well understood these things are by market participants and whether the disclosures made by providers are adequate. Disclosures surrounding algos are often high-level. While there may be legitimate reasons why providers don’t disclose certain things (such as intellectual property), it’s nevertheless important that users have sufficient information to facilitate comparability amongst these instruments. Another area where the FX market has continued to evolve is the increased usage of anonymous trading . As part of its Code review, the GFXC has a workstream looking at this aspect of the market, the roles played by venue providers and prime brokers, and whether the 4 3 / 4 BIS central bankers' speeches IGTA eJournal | Autumn 2020 | 9