Speech Panel Discussion of the FX Global Code at the GFMA Global FX Division

Transcript

James Kemp

Good afternoon everybody.  Thank you for joining us today at this Launch Event for the FX Global Code.  Thank you also to our friends at the ACI and at the Investment Association, our partners this evening and especially large thanks to Linklaters for hosting us.  For those that don't know me, my name is James Kemp, and I'm the Managing Director of the GFMA's Global FX Division.  I also run AFME's compliance and technology and operations divisions across Europe, and sit on the FICC Markets Standards Board.  All of these have extensive overlap, as you'd expect, and have put me in a very privileged position when it comes to a project like the Global Code. 

Over the last few years the industry has undergone huge and tremendous changes.  A new regulatory landscape, a more robust prudential environment, and a much greater emphasis on culture and conduct.  All together this represents unprecedented transformation in a very short timeframe.  This transformation has required buy-in from the buy side, from central banks, from the sell side, from supervisors, regulators, infrastructure, all market participants and from each firm across trading, operations, technology, compliance, and legal.  The development of the FX Code, which has brought us here tonight, is why I'm pleased to see such a broad spectrum of attendees in the audience.  The creation of the Code has brought together leading figures from all parts of the industry, who have all devoted many hours to debating, drafting, and refining the text, covering a wide range of issues.  I would like to congratulate all of those involved on reaching this milestone. 

The Global FX Division has been a strong supporter of this initiative from the beginning.  Several of our board members have been part of the Market Practitioners Group.  And all our member firms have been involved through the various central bank committees.  The same, I know, goes for the IA and the ACI and I'm sure many other trade bodies who are here this evening.  There is a real understanding, though, that this is a marathon not a sprint.  The size and diversity of the FX market means that getting the message out globally to the whole market is key.  With that in mind, I'd like to introduce our panellists here this evening.  They have been the key figures behind the Code and we look forward to hearing from them about how we've reached this point and what happens next.  Guy Debelle, known to many of you, is the Deputy Governor of the Reserve Bank of Australia and Chair of the Global FX Committee.  Simon Potter, to his right, is Head of Markets at the New York Federal Reserve Bank.  Chris Salmon is Executive Director for Markets at the Bank of England.  Adrian Boehler is Global Co-Head of FX, Local Markets and Commodity Derivatives at BNP Paribas, and is with us here today as one of the leading figures in what is the Market Practitioners Group. 

In terms of how we'll run this evening, the panel discussion will last for about 40, 45 minutes, after which we'll have time for a few questions and answers with the audience.  Then I hope you're able to stay for a drink and a chance to chat with the panellists and your fellow attendees.  Two things before we start.  Firstly, on health and safety, we're not expecting any testing of fire alarms, so if you hear one please do follow the fire exits and any instructions or go to the main entrance.  Secondly, in the UK there is a small matter that the UK is heading to the polls on June the 8th.  During this pre-election period, the Bank of England is in purdah.  And as such, I'd like to just note that Chris Salmon will only be taking questions on the FX Global Code today.  Questions on any other topic, difficult or otherwise, will have to wait for another day.  And any difficult questions on the Code, I guess, as well. 

Anyway, without that, we will move into the panel session. 

So, many thanks everyone for joining us this evening.  A few questions to kick us off.  Everyone here should know about the Global Code, I'm sure they do.  But it's probably just worth having a quick recap of the story so far, Guy.  What it replaces, where we are, and how we got here. 

Guy Debelle

Okay.  So first of all, if you don't know where the Code is, you can now find it on the newly launched today, globalfxc.org website.  This is what it looks like, by the way, in hard copy form.  But that's where you can find everything you need to know is in a one-stop shop at the globalfxc.org website. 

So how did we get here?  So, as all of you know, the FX industry has faced a deficit of trust over the last few years as a result of various things that have been going on.  And we in the central banking community obviously care a lot about the foreign exchange market as a key part of the plumbing of the financial system and very relevant, from our point of view, as a transmission mechanism of monetary policy.  And also we are all active participants, with varying degrees of activity, but anyway, participants in the foreign exchange market, so it's something we care about.  And going back a bit over two years now, it was recognised there was a need to try and address that deficit of trust and look to move the market to a better place.  As a result, we were commissioned by the BIS Governors to come up with a Code of Conduct and come up with ways to get people to actually adhere to the Code of Conduct. 

So we put the band together and it was very much, I think there are a couple of things to emphasise, it was very much a public/private exercise so it was the central banks working with the private sector, with the Market Participants Group chaired by David, who very much apologises for not being here, he's on a plane back to the US.  But a very able substitute in Adrian, has also devoted a lot of time to this.  So David's group of market participants, which were some 40-odd people from right across the market.  Across the market both globally and in terms of the structure of the market spanning all segments.  So central banks working together with the Market Participants Group drafted the Code.  We put the first phase out this time last year and today it's the culmination of all of that with the complete version of the Code, some 55 principles spanning all aspects of the market.  

Alongside that, the Code we put out today, we've put out our blueprint for adherence which has a number of dimensions which we can get to a bit later on.  The other thing which we've announced, which has come into being as of today, is the Global Foreign Exchange Committee, which is a sort of newly constituted body of the Global Foreign Exchange Committees.  So there have been eight core FXCs involved in this sort of work for a while but we've now broadened that to include a number of additional Foreign Exchange Committees, most notably China, Mexico, Brazil, Korea, and late in the day South Africa.

So we've got the broader coverage of that and with also India, Switzerland, and Scandinavia in the room, all of whom are in the process of formalising their Foreign Exchange Committees.  So that body has now got ownership of this Code.  Its Chair is actually Chris, not me, as of yesterday.  So Chris is the Chair with David as the Vice-Chair of that group going forward.  So that body is responsible for owning and maintaining, keep making sure this document stays current on a regular basis. 

This Code, there are two important elements, just to finish off.  One, it is a single code.  So it's replacing those existing codes which have been out there across the various markets and secondly, it's a global code reflecting what I was just saying.  It involves all the top 16 current FX trading centres in the world, one through sixteen.  So its breadth is very much global. 

James Kemp

Excellent.  Thanks for that sort of overview.  If we dive into the details, I suppose the first version of the Code a year ago covered ethics, information sharing, etc.  What's the key focus this time around?  Simon, perhaps one for you.  Where have we gone with this?  Lots more examples by the looks of things.  Who wrote them?  Who are they for? 

Simon Potter

So the phase one of the Code that was released last year did cover four areas.  The execution area was an area that we knew we had to build out from phase one.  So electronic execution, prime brokerage was a lot of the focus.  We also wanted to get the governance part put up right.  I think that is worth a read there.  The ethics and governance sections are very important as a foundation to everything that follows.  And people who are signing the Code, I know a lot of you are looking through, checking when you can sign through.  That ethics and governance is pretty critical in that sign off. 

Now the other part we had there was risk and compliance, which we built out.  So the latter part of the Code, risk and compliance and the settlement aspects, that was, I think, an area that we've made a lot of progress in the FX industry and the FXCs had made progress.  What we were trying to do is make sure that this code was more dynamic and took on some of the issues that are top of mind to many of you.  The electronic trading and definitely the Last Look, which I'm sure we'll talk about a little bit more, was an area where we put a lot of focus and I think we made good progress. 

Now on the examples, this is something that in the original design of the Code we want to include a reasonable number of examples.  Examples are hard to get just right.  So we formed, actually, a work group to help us in the second stage and a lot of effort went into trying to get the examples that would speak, not just to traders, but to everyone in the industry.  And as Guy tried to emphasise, this is not just for the sell side, this is for everyone.  So when you're reading through, and if you go online to read through, you can click on a principle.  If you do, it will take you to an example.  We want people to think through those examples and that will help them further understand what the underlying principle is behind the Code.  As Guy said earlier today, we want people to be thinking.  This is not a checklist.  This is for you to think how to support an FX market that is going to be robust, liquid, fair, and open to all participants.  

James Kemp

On those examples, from a market practitioner's point, do they make sense?  Do people on the desk understand them?  Can they work with them?  Do they clarify issues? 

Adrian Boehler

That's the beauty of having the Code more generally written by market practitioners for market practitioners.  It's real.  It's written in a language we should all easily understand.  And the examples go the next step to really bring the principles and the practices to life so we actually see what that looks like in our daily jobs, wherever we sit within the industry.

Now some of the examples are written with specific roles in mind.  So there are references to traders and the salespeople.  And also with specific client segments mentioned asset managers, hedge funds, so on and so forth.  But it should be taken as read that they apply all the spirit of the learning.  Or the principle or practice that's being illustrated applies to all market partners and not just a particular role or the particular client segment that's being highlighted. 

Guy Debelle

One thing that's worth mentioning is we actually road-tested the examples.  We road-tested them on our traders to make sure they could understand and as did a number of members of the Market Participants Group took them to the various people interfaced with the FX market and their organisation said, "Okay.  Does this make sense to you?"  And that was useful because in some cases they'd come back with questions.  Which either meant refining the examples, or in some cases, also writing the examples allowed us to see whether the principles were as well articulated as it could be and if the examples didn't quite work for the principle, it was sometimes the case that the principle needed to be adjusted as much as the example. 

James Kemp

Okay.

Simon Potter

I just want to emphasise, everyone should be looking at those examples.  They might not relate to your particular role, but it's very important for this Code to work that everyone understands different roles and responsibilities in the FX industry. 

James Kemp

So coming back to you Simon, something you mentioned, the topic of Last Look.  Perhaps that has been one of the most controversial, not necessarily for this Code, but of course going back to fair and effective markets in the UK for example, and we followed that debate obviously with interest.  Two questions for you, and perhaps Guy come on in this as well.  What does the word likely mean?  And does it mean that Last Look is, pre-hedging in the Last Look window still is, as it were, alive and kicking? 

Simon Potter

So I'm not surprised to get this question.  So we've, I think, been talking about this quite a lot.  I think you want to step back and think about what we're trying to do.  So we're trying to work together with the industry to help give guidance and apply best practices and we want this to be in areas that are actually relevant right now.  And clearly Last Look is a really debated issue.  How should it be appropriately used?

And we spent a lot of time writing this principle.  It's one of the longest principles in the execution section.  And the first thing is just ignore the trading in the Last Look window topic.  Everyone should be reading through that principle.  Last Look is primarily there as a risk control mechanism.  And it should be the case that people are providing Last Look and people who are using it understand that and understand how that particular provider is using it as a risk control mechanism.  If we have that out there, I think that would go a long way to improve understanding of Last Look and whether people want to use Last Look or not. 

Then we thought hard about, this is an area where the incentives can be a problem.  What's happening is in the way if you take a strict definition of Last Look, there is an option that is being offered to the person providing that service to accept or reject that order.  And we know where an option is not priced correctly, that can lead to problems.  So we are very careful to articulate in the latter part of that principle what those problems can be.  So, for example, at the right start, when we are going through some of the issues after risk control, it is completely inappropriate to use Last Look to gather information with no intention to trade. 

Then if there's a part of the algorithm or the way that you're executing Last Look where there's a belief that you can more efficiently execute it by doing some trading related to that trade request in the Last Look window it has to get past two things.  One is, what is it that you need to do given how recent that price is because you're basically giving to the market some information about someone's interest.  Then if you don't execute, if you reject after doing that, how can you get the client in a good position?  It's very hard to do that. 

So those two things made us think that likely, but we cannot be sure, in most instances, that trade in the Last Look window is probably not going to, on average, benefit the client.  But we want to know across the whole industry if there are different ways of executing whether liquidity provided by this, particularly in strained market conditions, might allow it to get past those two barriers. 

James Kemp

So I should actually probably jump in with Chris there.  I think the next phase with the Global Code is to look at a consultation around this.  So maybe Chris, you can come in on that. 

Chris Salmon

Thank you James, and I'd just like to reiterate, to start with, everything Simon said about the length of the Principle 17 and the cloud of guidance it provides about its role as a risk control mechanism.  We did debate the issue around trading in the Last Look window extensively during the period and the language in Principle 17 about likely inconsistent.  It's the correct language for the principle and that's where we ended up.  But we did conclude as well, this was one area where the newly formed Global Foreign Exchange Committee could play a role by initiating a more public consultation, try and get further information from the widest range of market participants about that particular aspect of Last Look.  So if you go on the website that Guy mentioned earlier today, we have launched today as one of our first acts, a consultation specifically on trading in the Last Look window.

We ask two questions.  One of which is related to that.  I'll read out the principle as it stands.  "During the Last Look window, trading activity utilises information from the trade request, including any related hedging activity, is likely inconsistent with good market practice because it may signal to other market participants the client's trading interest, skewing prices against the client and is not likely to benefit the clients."  We state the principle and we're asking, "Do you agree or disagree?  Or are there specific situations where trading activity could actually benefit the clients?" If you think there are, let us know.  Feedback that information. 

And then the second question is, "Based on your response to the first question, do you consider the language set out in the Code on this activity should be modified, for example strengthened?" Or I think it said, "Left as is."  So we've kicked off this consultation.  It runs until the 21st of September.  We want people to send in their reactions, their feedback.  People should do so anticipating any inputs to this process will be made public and attributed.  Then the Global Foreign Exchange Committee will come together during the fourth quarter of this year, look at that feedback systematically, and reach conclusions which may be that the likely inconsistent language is completely appropriate or some modification is needed. 

James Kemp

Okay.  Helpful.  So I suppose what that sort of says to me is that generally, 55 principles or 54 principles…

Guy Debelle

55.

Simon Potter

54 plus…

James Kemp

So 54 principles were successfully discussed, we have one that is still going into consultation...

Simon Potter

I don't think that's the right way of thinking about how best practices work.  This document is going to evolve over time.  So we reached a judgement with our knowledge and everyone's knowledge that this was the appropriate principle at the time.  If we get more knowledge, we'll evolve that principle.  This is as equal as any other principle.  It's written clearly.  Remember these are guidelines, principles.  It's not a rule book.  I want everyone to look at this and understand what we said in it and if you're on the buy side, you're receiving Last Look, find how it's provided.  If it's provided in this particular way we trade in the Last Look window, try and understand whether that's to your benefit or not. 

Guy Debelle

To that point though, James, any of those principles may, in principle, need to evolve in the future as the market changes.  And it just happens to be the one which is in the most state of flux or debate at the moment.  Hence, this process.  But in 12 months' time, it may be something else which would be worthy of going through the same sort of process. 

James Kemp

And in the Market Practitioner's Group, probably Adrian is best to answer this one, was there sort of fierce debate across the general principles or was it a process, a constructive process getting to this point?

Adrian Boehler

Yeah, it's an interesting point.  Personally, I've been very, very impressed throughout the process, throughout the drafting by the degree of engagement from market participants.  Discussions have always been constructive, they've been respectful, opinions have been listened to, and they've been very inclusive.  There are other members of the MPG in the room.  I'm sure they attest to that view, too. 

A couple of important points to reiterate what Guy said before.  The construct of the MPG is very, very important.  It's not just the sell side representation on the MPG.  There's a healthy cross section of all segments, so it's fair to say that all viewpoints were discussed.  That's the first point.  Secondly, the FXWG and the MPG received over 10,000 comments over the two drafting phases and I can attest to the fact that the MPG went through every single one of those comments line by line or the co-heads in some cases of the various different work streams and I co-chaired the information sharing section in phase one and adherence in phase two.  The industry has been given an opportunity to voice its opinion and it has. 

Now, when it comes to forming consensus, particularly on some of the hottest topics, there has been a huge amount of debate particularly on principle 17.  We've had to settle or the MPG felt it was appropriate to settle on one notch less granularity and prescriptiveness than perhaps some individuals or some individual market participants might have wanted for the greater good of the Code.  Now, what that doesn't prevent is individual market participants requesting or seeking a greater degree or stricter degree of implementation or interpretation of a particular principle or practice in their bilateral discussions with their counterparties.  If nothing else the Code definitely gives a comprehensive framework for having those discussions.

James Kemp

My conversations are exactly that, is that it's opened up the debate, the transparency etc, and I think it gives a basis for discussions between counterparties in the marketplace on areas that perhaps didn't have enough clarity or disclosure.  On that point the Code is very clear about increasing disclosure, increased transparency.

Would you expect going forward, for Guy and Simon, would you expect to see it starting to be incorporated into the disclosure statements that people have with their clients?  These sort of public statements of disclosure.

Guy Debelle

Well, those statements should absolutely be consistent with the Code.  We'll probably talk about the Statement of Commitment at some point shortly, but you want to be signed up to that Statement of Commitment, you're adhering to the Code, then any communication you have with your client should be very reflective of what we've got here and so absolutely they should be aligned, because to be able to say that you're committed to the Code and you're adhering to the Code any communication you're having with any of your counterparties should be completely consistent.  Easy way to be consistent is to use the same language.

Simon Potter

So, when you receive a disclosure statement you should be reading through it and feel comfortable understanding that.  Reading through the Global Code alongside with it will be helpful, and one of the things we want people to do is ask questions so they understand exactly what services are being provided to them.  This is reasonably critical I think.  There is responsibility of the buy side to do that and the buy side has to be a very active participant in improving the FX market.  If the buy side is just accepting the services, not asking questions, not thinking through it, then that's not going to help us achieve the goals of the Code.

James Kemp

So that segues neatly into the adherence Commitment Statement that you mentioned.  Probably from your side, Chris, given that you are chairing that group going forward, the adherence, the blueprint that was published today probably gives us a useful place to start with how that process runs forward from here.  A sort of a broader overview of how people sign up is a recommended statement at a business level, at a country level etc, how does that blue print run from here onwards?

Chris Salmon

Sure.  So just stepping back a bit, the whole purpose of this exercise has developed a Code of Conduct which improves integrity to market, and for that to happen it has to be adopted by a wide range of markets participants across a broad range of jurisdictions whilst recognising this is not regulation, it is a voluntary code.  So the blueprint that we published today set out the four tenets we think, underpin steps toward widespread adherence.

The first is the obvious one.  The Code itself needs to provide clear, relevant guidance, which reflects good practice in the FX market.  The exercise we've been through over the past two years, which I think is unprecedented in its kind of depth and ambition to achieve that leaves us in a situation where we are very confident the Code published today, meets that standard.  Then the second tenet is the responsibility of market participants to take that Code to embed it into their systems and processes, into their firm, so they actually follow the principles picking up on the point Simon and Guy have made thinking carefully what does the Code mean for our business?  Then we've developed an annex to the Code.  Annex of a short Statement of Commitment, which firms can use to demonstrate to their market participants that they have taken those steps and they are acting in a way which is consistent with the Code. 

What we hope is through time firms across all range of the market will choose to make those Commitment Statements and will start expecting that their counterparties have made those Commitment Statements.  Which goes back to Simon's point about the responsibility on the buy side to understand how their counterparties are acting and if we can move to a world where there is an expectation that firms are following the Code and demonstrating it, that will create confidence in the market, that there's wide spread adoption of the Code.

The third tenet is the central banks themselves will take leadership and try to facilitate that process, something which has been talked about at previous fora but we've made it clear that we in our relations with our counterparties would expect them to adhere to the Code.  We will adhere to the Code to our own actions and any Foreign Exchange Committees that we help facilitate, we'll expect those members sign the Statement of Commitment if they want to be on our Foreign Exchange Committees, and that's true of London, it's true of New York and it's true of the Australian Committee. 

Then the final element is the job of the Global Foreign Exchange Committee that we've mentioned who'll make sure the Code stays up to date through time so we can make amendments as the market moves forward.  So the Statement of Commitment, which is very important, is an element in the blueprint that we have for adoption and from the firm's side it's the bit that they can do by thinking about their behaviours and whether they are working in a way which is consistent with the Code.

James Kemp

So I'm going to bring in a couple questions sort of in overview here and then perhaps one from a practical what it feels like on the practitioner's side.  I mean, Guy, and I guess, going forward to you Chris, are there plans to audit the firms that have signed up or signed or is there a central reservation or a place that people record that?  What are the plans for how will people know if firms are signed up to the Code?  Is there sort of a gold, silver…

Guy Debelle

I think it comes to the point, if you can provide that, I think it will be interesting to see how the market evolves in terms of requiring the sort of thing that you're...  Or expecting the sort of thing you're talking about.  Whether they will, say, "Well, that's nice that you've signed that Statement of Commitment.  Can you demonstrate to me that you're doing what you say?"  My sense from talking to a number of people is there's some likelihood that that may come to pass.  We're not requiring that but if the market moves in that direction, I think that's certainly a possibility.  The other point we are talking about; which I may leave to Chris is around a public register of those who have signed a Statement of Commitment and having a way of being able to access it, which I might let Chris talk about.

Chris Salmon

Yeah so in terms of the steps that the Global Foreign Exchange Committee thinks it can take as a public/private partnership, we've come to the conclusion that we can and should facilitate the creation of registers.  Where people can collect the Statements of Commitments that they have made so it's an easily searchable place where people can go and see which firms have signed the Statement of Commitment, which is relevant for the market segment they're working in.  So I think some time in the next month or two, the Global FXC will publish some principles or guidelines about what a public register might look like, what sensible characteristics a public register might be and from speaking to various associations and infrastructure providers, we're pretty confident there are organisations out there who want to establish public registers and I would be highly confident before the end of this year and quite possibly well before the end of this year, public registers will be established whereby firms can post their Statements of Commitments, I guess, easier for market participants to see who has signed a Statement of Commitment. 

Then what the Global FXC will do, is we'll create a global index of registers, given that this is a large disaggregated market across the globe.  So, if you want to understand which registers exist, you can go to the Global FXC website, from there, go to the register most relevant for you.  Just on your comment about auditing, that's not something that we have mandated.  I think for some market segments, players may well conclude that they want to go and get some form of third party perspective either for their own purposes, or in order to be able to demonstrate to their counterparties.  Adrian may pick up on this but if you think about, the FCA remediation process, I feel that was a similar, there's some echoes there where firms actually found it helpful to get third party inputs, they went through that process.  But that's not something we have mandated from this ourselves.

James Kemp

And with that in mind, more from the MPG, talking about how people might be moving it forward.  What are the sort of range of options that people have?

Adrian Boehler

Well I mean, as Chris mentioned, that's going to be down to every single individual market participant to interpret that, in the context of their own business, because it has to be proportionate.  How a large, sale side market participant adheres versus how a less frequent, or more casual user of the foreign exchange market adheres, are going to be very different.  In both cases they're very personal journeys.  The reality is the adherence work stream with the MPG was acutely conscious of making sure that on the one hand, we had a credible adherence framework and yet on the other, that we captured the largest possible audience of market participants and we're happy that we've settled on language on the Statement of Commitment that strikes that balance for sure.

Now, it's going to be down to each individual market participant to look at the Code, get into the weeds and see how the principles apply to their own business and then choose the best way forward to adhere.  For large, sale side market participants I think the feedback suggests that one of the challenges is knowing which entity should sign, because large, sale side market participants or complex, financial institutions, and that will apply too to some of the larger buy side firms as well, have foreign exchange activity warehoused in various different entities.  So it is one Statement of Commitment or is it possibly a few, to reflect the different activities, under the umbrella of the group.

James Kemp

And could it be any of the above?  In terms of...

Adrian Boehler

Yeah, I think the MPG in the discussions that we had was quite comfortable that that was wholly acceptable as a function of the individual markets.

Simon Potter

It should be consistent with the lead principle on governance, which you have to read through and make sure you're following that, yes.

Adrian Boehler

Common to all market participants; and this really resinated on the MPGs, irrespective on the size, shape and colour of your business, Chris' point about making sure you understand how to embed the Code into your practices; whatever they may be, whatever the scale of your business may be and being able to monitor them on an ongoing basis and in due course, demonstrate ongoing adherence, that's important, irrespective of the size and scale of your business.  That's one of the underpinning tenets of adherence.

James Kemp

Very helpful.  I suppose we're in London tonight and we have the FCA in London; one of the largest, the largest FX market.  How does it fit, Chris, with the Senior Manager's regime?  The statement this morning from the FCA talking about taking it into account as part of their regime.  Does it mean there's effectively regulation of this code in the UK but nowhere else?  How does that fit, what is this with the UK position?

Chris Salmon

No, to code is not regulation in the UK, it's not regulation anywhere but I think the FCA has been consistent for over a year now, that they see the Code as providing relevant guidance about what good market practice is in the foreign exchange market and it's likely correct that they have reached that conclusion.  If you go and look at the Senior Manager's regime, and you think about evidence the FCA looks for to see whether senior managers are fulfilling their responsibilities, it does talk about ensuring that firms follow generally accepted market standards, and so the Code is an input which enables the FCA to consider how senior managers fulfil those responsibilities.  They've been fairly clear about that for over a year and I think all SMRs in the UK, who are overseen by FCA or PRA, should anticipate that that's one of the factors that they will look at when they're considering SMR performance.

One of our challenges have been to develop a single code, which can work in many different jurisdictions, so in that sense we have been agnostic about how market supervisors, securities regulators in different jurisdictions will choose to take account of the Code in their jurisdictions.  So in Australia, and Guy can talk to this, the relevant supervisor will take account of the Code.  The Chinese made perfectly clear at the Global Foreign Exchange committee meeting yesterday, that they will take account of it as well in their jurisdiction.  So it'll vary in other jurisdictions there'll probably be less direct reference to the Code but that's a jurisdiction by jurisdiction conclusion.

James Kemp

Do you think that; perhaps looking at you Simon, US markets for example.  Where does it sit there?  Are there teeth outside of the UK for the Code?  We've heard from Australia, we've heard China etc.  What about in the US for example?

Simon Potter

So, as Chris pointed out this is not regulation, it's a voluntary code and we use best practices a lot in the US.  They've been very successful for us, and I view this as being a supplement to the regulatory and supervisory regime we have in the US.  Now, the teeth for us in best practices, particularly in the treasury market have been the relationship the New York Fed has with its counterparties.  The central banks were pretty clear today in the statement that they issued from the BIS, that we will be committing and adhering to the Code, we expect our counterparties to.  I view that as having some teeth for a segment to the market.

In addition, and in New York we're very strict on this, with our best practice groups that we put together, we expect all the members of those to be adhering to the Code and that means their firm is adhering to the Code.  We've found that to be a very effective supplement to regulation and supervision.

James Kemp

So that obviously captures in the main, as you say one segment of the market.  How do we get the message out to the broader market?  I suppose.

Simon Potter

So the membership of our FXC is very diverse and we have hedge funds, we have platforms, we have high frequency firms.  So that's one way that we will get it out.  I think events like this are another way of getting that out and once you have a significant mass of people who are following the Code, I think the market itself will enforce some discipline there.  That's something we all expect to happen and believe the Code is going to prove useful to people.  It will re-establish some of the trust and integrity not only amongst the public, but the people in the wholesale market themselves. 

The people who work with this on the Code, like Adrian, these are people who are really dedicated to the FX market.  The vast majority of people who work in FX are trying to do that, so that we should view this as a positive step, here's a set of principles to think about in the business and the market as a whole, and I'm very positively viewing this as going to be an added progress in that way.  But there's no way that this code or regulation or any other thing will prevent a single person or a group of people getting together and committing some kind of bad behaviour or violating law or regulation, or exploiting some loophole. 

What we want, is for the industry as a whole to be more aware, up to date of where that might be coming, so they can call that out as soon as possible.

Guy Debelle

So just let me just add one thing, which is to your question James, which is...  Over the last little while we've engaged with around 120 industry associations right round the globe, so a decent whack, in getting the message out there and utilising them and generally they've all been willing to get the message out to their members.  So that we are going to avail ourselves of those sort of opportunities wherever possible to get that message out as broadly as we can.

James Kemp

Do you have a concern; which is some of the noise we heard perhaps in the early phases, that was mostly aimed at sale side, and sort of ensuring that the relevance of it to the buy side is there and the examples, certain parts of it apply across markets, some apply to various segments.  Are you happy that message is getting out?  Or how do we improve? 

Guy Debelle

Well I keep on saying it, it doesn't mean it gets heard, but I don't think I'm banging my head against a brick wall.  I think one of the points that I make around this is that...  So, I've made this point to the Corporate Treasurers in Australia.  So they have a more sporadic engagement with the market, and we make it very clear in the Code that proportionality matters and Adrian mentioned this earlier, that it really depends on the nature of your engagement in the market, as to how much it's directly relevant to your own operations.

However, what is useful if I'm a corporate treasurer is I can pick this up, I can read it, I think it's pretty readable actually, so I can actually read it.  And then I can say, "Okay, this is the sort of expectation I should have of my counterparty in my somewhat sporadic engagement with the market."  So the relevance to them is as much a, I'm not sure how-to guide but a guidebook as to what the expectations I should be holding my counterparty to.  It's not going to have so much direct relevance to their own operations, it's more, "This is what I should be expecting from my counterparty."  So I think the use to some of those segments of the market is very much that, rather than requiring some realignment of their own operations.  This is what I should be expecting when I'm interfacing with the Foreign Exchange Market and that's really where the value is to some of those segments of the market and that is the message I'm trying to get across.

Chris Salmon

My sense, James, to go to your question is the depth of awareness and engagement with the Code outside of the core sale side firms, has and continues to grow.  So when I think of doing events like this, March of last year, I would say the awareness levels outside of the core sale side, was a lot lower than when I was doing events around this March.  And I think it is growing, it probably still needs to continue to grow but I think the arguments, that Guy and we have been making, have had an impact and people do understand it.  And fundamentally the Code is a tool for all market participants and that's what we have to keep saying and keep reiterating.  But my sense is, that message is being heard more and being more accepted than it was eighteen months ago.  So in that sense I have some confidence.

Adrian Boehler

I'm thinking on that particular point to Chris' point about awareness rising, if you track the pattern of feedback over phase one and phase two, we had 4,000 comments in phase one and we had 6,000 in phase two.  And okay, maybe we can argue that some of that increment is because of Last Look and the contentiousness of Last Look in the second phase, but we had agency versus principal in phase one as well, which wasn't a small discussion either.  So I think...

James Kemp

Is that one solved, I don't know. (Laughs)

Adrian Boehler

So I think that clearly shows that awareness and a desire to, kind of, participate in the discussion is improved.

James Kemp

So that leads into the next question that I have, which is you're obviously working with clients day to day and I know you're here for the MPG as the whole market, not as on the sale side.  Can you already point to positive impacts, or what other positive impacts are you witnessing from the market, as this Code - I mean phase one was well understood and started to be integrated into what people are doing, are you seeing changes in behaviour, positive moves et cetera?

Adrian Boehler

Yeah absolutely.  There are several but there are two that I would highlight most palpably.  The first one is around information sharing.  Now you'll recall when the MPG got together for the first time New York in January of last year we were given the list of topics, which the FXWG wanted input and content on, and we felt noticeable in its absence from that list was information sharing, because at the time the MPG acutely sensed the paralysis when it came to dissemination of market colour, because of all the investigations.

So in May of last year with the delivery of phase one, was the delivery of guidelines and principles around safe information sharing and that's already unlocked that paralysis and information and market colour is flowing much, much more efficiently than it has done in the past and that's a major step in the right direction.  It's key to the efficient functioning of the market.  So that's one very palpable benefit.  And secondly, we've kind of already mentioned it, and that's these disclosure statements is becoming much more common practice for market participants to explain how they operate, and their terms and conditions, at the heart of the Code is transparency, so that's a huge step in the right direction.

And again to the point I made before about bilateral discussions, the Code absolutely gives market participants the framework for requesting, or in some cases, challenging for more transparency if they're not comfortable with what they see and observe from other market participants.  So I think there are a couple of a very palpable benefits.  And then in terms of adherence, I think now that the Code is alive and public then the gentle but healthy peer pressure of seeing, you know, a few market participants sign their Statement of Commitment will clearly mean that momentum shifts towards demonstrating the adherence, so I think there are a few palpable positives already.

James Kemp

Very good.  Any comments before we move on?  I'm conscious of time, so I'm thinking of taking questions, but anything you want to add on that sort of, what you've seen so far in the market changes over the last 12 months?

Guy Debelle

Well Adrian nicked my example so...

James Kemp

(Laughs)

Guy Debelle

I think information sharing is an obvious one.  I've used it a few times today already.  I think that's one very clear outcome from what we put out 12 months ago.  I suppose the other point which I would make, which is sort of related to that, and it's the discussion point. I mean, I think we somewhat underestimated the benefit of getting a bunch of people around the table and thrashing out some of these issues with the range of perspectives that were present around the table, and that's spilled over into the market as a whole, I think, some of those conversations, and allows it to move to a better place.  I mean one of the greatest benefits I think is ensuring a common understanding of what good practice is which wasn't there before.  They all had their own views as to what good market practice was, and often in cases they were fairly aligned, but in some cases not so much.  And I think one of the main benefits of this is setting out that collective judgement from a broad range of market perspectives as to what constitutes good practice in the market and that allows those conversations to happen in a much more effective way than they may have in the past.

Chris Salmon

We had a roundtable and Tour de Table at the Global Foreign Exchange Committee yesterday, where we asked all of the regional committees to report back on their activities of the year.  I think one of the most common themes was the process of developing the Global Code, it made all of the regional committees to think about their composition and membership.  And a very positive side effect has been those committees are becoming more representative of the market as a whole, as everyone appreciates the benefit of bringing greater diversity for you to have these collective discussions about market structure, market development.  So the FX Committees themselves have been changed by the process of developing the Code and this recognition, the kind of thoughtful dialogue about what good practice means, can help us come up with better guidance.

James Kemp

And that of course will continue with the Global FXC seen on an ongoing basis. 

Chris Salmon

Yes.

James Kemp

So I think we can probably move to some questions now from the floor.  We have got some microphones, first question in here from...  if you could perhaps give your name and where you're from would help everybody as well but I know who you are so (laughs).

Bridget Taylor, ACI

Thank you.  My names Bridget Taylor, I'm the MD for ACI.  Just congratulations to everybody I think it's been a superb effort with regards to both the private and the public sector.  I'm sure that you're all fatigued however the question that I'm asking is just in terms with the longer term, Guy mentioned earlier with regards to the evolution of the Code.  The one part of the Code that is specific, is specific around FX with regards to execution.  I just want to get a little bit of understanding what the forward thinking is with regards to including other asset classes under execution because the other general themes seem to cover almost every aspect of market behaviour, but that is one that is specific.

Guy Debelle

Yeah that's a good question.  I mean we were tasked with the, not so narrow, as it was, exercise of dealing with the FX market, but you're right, it's relevant for other asset classes, and I mean, James had some perspective on this, and some of the stuff that we've got on other aspects of the Code is obviously very relevant across all FICC markets.  I suppose around execution is where the idiosyncrasies pop up across the other FICC markets, and those idiosyncrasies are not just relevant to the asset class they're actually different across the globe.  If I take fixed income as the most obvious one, even sovereign debt management practices differ across jurisdictions in a way which has a material effect as to what might constitute good practice in terms of execution, and so I'm happy for that challenge to be landed with someone else, I mean it was big enough sorting that one out.

But that said in each jurisdiction you know…

Simon Potter

We have a Treasury Market…

Guy Debelle

You have your Treasury Market Practices Group, other jurisdictions have – it's addressed here through the FMSB at least amongst other things.  But I suppose, I mean, at the moment I think we've demonstrated...  let me make my higher point, that we've demonstrated this sort of public/private sectors working together can actually come up with something.  Obviously yet to be fully tested, but nevertheless you can actually use this sort of process to come up with something which I think is worthwhile and I suppose that does mean if the need arose it is possible to do something similar across those other asset classes.

Chris Salmon

If I might come in here, I think there's a good reason that there's a Global Code for foreign exchange markets.  I think that will remain the sole global code, but it provides guidance on many aspects which are common to other FICC markets, and if you think about in the UK context, that's guidance that the FICC Markets Standards Board can draw upon as it develops its own guidelines.  Recently we hear about, in the UK, of a UK Money Market Code, which replaces the money market bit of the NIPs code, and the precious metals code will be published replacing the previous metals bit of the NIPs code, and they all draw upon the guidance in the FX Code, supplementing it with those bits of guidance, mainly on execution, which are relevant for those specific markets.  So I do not think this Global FX Code will assume or consume other asset classes but it can be used in relevant jurisdictions as a helpful input, and I think a good test of the strength of its guidelines to the extent to which that happens.

Simon Potter

So we can all learn from each other and we can have it through one code or we could reiterate other codes, the Fair and Effective Markets Review, I found incredibly helpful in New York looking at all the great work into that, and that helped us think through stuff for the Treasury Market Practice Group.

James Kemp

Yep, very good.  Any other questions, knowing the sun is shining and you're moments away from a beer, but...

Stephanie, Bloomberg News

Hi I'm Stephanie [unclear 0:51:20] from Bloomberg News, I'm a reporter.  So I was wondering, because banks are already busy with a lot of regulation and there is MIFID coming, and there are many, many rules they are trying to apply.  So what are your expectations for them to apply this Code and if you have like a kind of an estimate of cost for them?  What it will take for them to apply this Code or if you are giving practical suggestions to the banks to how to implement the Code quickly and you know, a cheap way.

Adrian Boehler

So with respect to timeframe, you know, I speak under your control but the current thinking is the mean time of signing Statements of Commitment is somewhere between six and 12 months.  It's fair to say that certain segments of the market will be perhaps further ahead and more advance in adjusting operating practices because, you know, some firms have been through, or some market participants have been through remediation, so are further advanced in transformation of their business.  Others are embarking on that relatively recently, okay.  But on average the mean is between six to 12 months.  Now in terms of costs, very difficult for me to speak on behalf of the industry, and again it goes back to the point about proportionality.  What I will say though on the point about doing it cheaply, to mention your words.  I understand the point, the cost of getting conduct wrong, and I feel particularly qualified to talk about this today is immense. 

So, you know, one cuts corners at one's peril.  But it is going to be very much about proportionality, and the size of the business which will dictate how intrusive the surgery is or the transformation is.  I didn't actually properly answer the point about auditing before, because it is very relevant in the context of cost.  Now the MPG's adherence work stream did reach out a number of independent consultants to see whether they would be prepared to kind of put their name to an independent audit, and the numbers that came back were, we felt as an MPG adherence stream, prohibitively expensive for perhaps many, if not all smaller market participants.

So to Chris' point, we didn't put that forward as best practice, you know, getting independent auditing, because we felt it might exclude a number of market participants who couldn't afford the cost.  But there are a number of different mechanisms for embedding the Code in practices.  Obviously training staff is a very, very important part of that, certainly in the experience of BNP Paribas, which I'm happy to talk about, we've done extensive training, 700 staff globally on our own internal principles and guidelines, which have been fully aligned to the Global Code.  So yeah, I think that's how I would...

Guy Debelle

I will just reframe it slightly in the sense, I think most, if not all market participants have already been evolving their practices in the direction that we've articulated in the Code over the last few years, so there's been this direction of change already.  So I think, there's a large part of this about verification around that, which is a different thing than a complete realignment of one's business.

The other point I would make, and we alluded to earlier around the information sharing.  I think, my expectation is this allows the market to function better, which is an important point to make, certainly not worse, let me put it that way, but in all likelihood better.  And I think the information sharing is an example where that was absolutely the case, so that's actually beneficial.  So that's not a cost, that's a benefit.  So I don't think framing it in terms of cost is actually the right way to go about it, or you can take Adrian's point in the cost benefit calculus in some cases is pretty damn obvious.  But it is a case that this is businesses just ensuring that their practices are aligned with this.  I think that's a different situation from some of the other things I think you're alluding to.

Simon Potter

So the three of us here have to do this as well.

Simon Potter

We have to go through our businesses and check we're adhering to those 55 principles in a proportionate way.  That will take some resources.  We should be doing it, we want to be responsible members of the FX market as everyone does here.  So give some resources to his, we'll end up with a better FX market, and it'll be better for us, but most importantly for the people all over the world who rely on an efficient FX market.

James Kemp

Couple of questions over here.

Morgan McDonnell, President ACI, UK

Morgan McDonnell, President, ACI, UK.  I'd also like to echo the congratulations on what you've done so far I think it's fantastic.  Just one question, in relation to the Code being voluntary, and we know obviously we have to prescribe to the Code.  Would it be fair to say that central banks would be very critical of multinationals and the buy side, that use institutions to have them signed up to the Code.

Guy Debelle

We'll be critical of our counterparties who haven't signed up to the Code, in the sense that we'll actually stop dealing with them.  So no, we're not in the – we're promoting this, I'm not sure that we're promoting it in the positive sense, I don't expect we're in the business of calling out people in the negative sense.  It's very much, as I said, the parts over which we have direct control and can set the example is with our own counterparties and with our own central bank sponsored Foreign Exchange Committees.  So that will set a standard, which we would then expect to be promulgated through the market but I think it's by setting that standard is the way we're going about it.

Chris Salmon

Perhaps a way of answering your question building on what Guy has said, is we would hope to persuade the types of firms you're talking about, about the benefits to them, making sure their counterparties adhere to the Code, and there is strong self-interest in dealing with counterparties who have made those statements.

Simon Potter

We've all been quite public, with the benefits of the Code, I think we will continue to be.  If we feel there are participants, you know, as a class, who aren't seeing those benefits, well I'll be out there trying to communicate those benefits again.

James Kemp

I think there's one more behind you there.

Nicola Tavendale, Profit & Loss Magazine

Thank you.  It's Nicola Tavendale for Profit & Loss.  I just wondered if the panel could explain a little bit more about the practicalities of creating a global register, and how you avoid that becoming a burden, and essentially dead in the water and instead make sure that's a living key part of a thriving FX market, and how long do you expect that to take, to develop?

Chris Salmon

We've been discussing the idea of developing registers through the adherence work stream with both the central banks and private sector in recent months, and we judged the firms would find it valuable to be able to post their Statements of Commitment to these registers.  We discussed this again at the Global Foreign Exchange Committee yesterday, and I think one of the kind of strongest pieces of consensus from the five sector firms there, was they saw real value in registers being developed.  Now this is a global business from many different market segments, so there can be no single register, where all Statements of Commitments can be posted.  And the model we have alighted upon, is the GFXC will put out relatively soon, four, five, six principles that we think define the characteristics of a public register.  They're fairly straightforward, I won't enumerate them then because I want to leave something for two months' time.  But it would not surprise you when you saw them, and we are pretty confident when that has happened, the organisations will come forward, and established registers will start getting populated.

The idea to global index, which we will house, presumptively on the Global FXC website, as a one-stop shop where you can go and see where all those registers are.  There may or may not be some search functionality on that website.  That's unfortunately is to be resolved, which creates slightly more of a burden, but the idea is a single place where you can go and see where the registers are, click on the register most relevant for you, and then see who signed that Statement of Commitment.  So I don't think it's an undue burden, but the clear message I took from the meeting we had yesterday was real reinforcement, the market will see value in being able to use registers.

James Kemp

We've probably got time for one more question if there is one before we then just move perhaps to a few closing statements.  So I'm  giving the panel warning for a few thoughts as we finish.  Anything, anyone out there (laughs). 

Bridget Taylor

With regards to the discussion around costs for all of this, you know, if you look at it- maybe Adrian you can answer this.  In the bigger scheme of things hopefully at some point it becomes something that's valuable enough, that the cost of your CVA requirements or your operational risk, mitigate the cost of implementing this type of regulation or ethical conduct.  Do you think that that is something that we can expect down the line or something that, I mean, with registers and things where people's names are attached to committing to these types of codes of ethical conduct, surely there's a value to that, that supersedes the initial investment in terms of ensuring that your behaviour and ethical conduct of your staff is overseen?

Adrian Boehler

Sure, I'm not sure I can answer the first bit about the impact on CVA going forward and what have you.  But I think there's definitely strong commercial incentive to embracing this new conduct framework for a whole host of reasons.  Most importantly because of the positive message of assurance that it sends to other market participants, you can engage with me because I think about the world in the same way that you do, I have the same conduct standards, I think that's a very strong message, and I would fully expect that the Statement of Commitment, the fact that you've signed it, becomes an important parameter into the input for selection of your counterparties.  So I think there's a very strong commercial incentive to do this, over and above the message of assurance and, which is a powerful message, in and of itself.

James Kemp

Okay, one question and then closing statements I think.  Just wait for the microphone.

Standard & Poor's Global Market Intelligence

I think what the question was earlier, do you expect to be find a bit less FX transgressions once you start delve code quite religiously.

Adrian Boehler

Today's about forward looking.  Today is really about the future, and not really about so much what may have happened in the past.  We have to put our hand up and acknowledge what's happened in the past.  It's regrettable but we move on.  There's a reason we're here.  There's a reason why the desire to write the Code was born, and there's a reason we've all spent, you know, weekends and long nights and hours and hours contributing to it because it's the right thing to do.

James Kemp

Guy any final thoughts from you?

Guy Debelle

No.  I mean it's very much related to what Adrian just said actually, which is this, and going back to your very first question, was this endeavour was very much about the collective desire, both on the public and the private side to move the market to a better place so that it does actually function more effectively, because trust is absolutely central to the effective functioning of financial markets, be it a FX or any other asset class, and there was a deficit of trust in this industry and that needed to be redressed.  We regard this as a way of redressing that deficit of trust and moving the market to a better place and thereby improving its function.

And that collective will was there both on the public and the private side and just to pick up on what Adrian was just saying, the demonstration of that is that everyone on the group both on the central banking side and the private side was doing this above and beyond their daily responsibility.  So we all still had our day jobs, and then this was, literally in my case, the night job, and the willingness to devote that time and effort to come up with something like this was just a very concrete reflection of that desire and that recognition that the market needed to move up to a better place.  And that's what this is really all about, is this is something designed to benefit the market, improve its functioning for all participants in the market, and have greater confidence in the effective functioning of that market going forward.

Simon Potter

So, I'd also like to thank all the market participants both on the MPG and who sent in all the comments from the various FXCs.  I'd like to thank some of the people whose day job it was, Jamie Pfeifer and some of the people who work for the New York Fed, and throughout this audience.  The people from the central banks, who managed to produce this code, in two years, and it's a very good piece of work, I hope you all read it, and I'd just like to thank them for all that work, which was a lot of weekends, a lot of early mornings, and lot of dedication, but also skill, from working on best practices and I think going forward, that skill in best practices that we've got from this, I think Adrian pointed that out, will allow us to evolve this code in a way that keeps up with a very dynamic market.

Chris Salmon

I'm going to add to Simon's thanks for the work of everyone over the past two years, and then just finish with the observation that we have created a code, which is a tool for market participants to improve the integrity of the market, but now it's really over to market participants to show leadership, and I say this particularly to London based market participants, given the size of our market, and embed and embrace the Code, and realise its benefits.  But people have to do that step.

James Kemp

Can you offer anything Adrian before we wrap up?

Adrian Boehler

Sure, I mean, thanks to the FXWG but also to my colleagues on the MPG since I'm representing the MPG today.  They put in a huge shift during this process, and you know the output I think has been fantastic.  No doubt some individuals will think we haven't got the temperature right on every single topic, be that as it may, I think what we can say with great pride, and great confidence, is that the industry today takes delivery of a very, very credible set of principles and guidelines which will evolve.

James Kemp

So from my side I'd like to thank: Guy, Simon, Chris and Adrian for this evening for the openness of this conversation, which I think is sort of in the spirit of the whole Code, in the way in which it's been developed, and also to congratulate the leads including David Puth, who had to fly back to the States who obviously led the MPG very effectively and well.  So congratulations to getting the Code out today and thank you very much for all your time this evening and the openness, and please join us for a drink afterwards.  Thank you very much.

[Applause]