Transcript of Question & Answer Session Panel participation at the Refinitiv & ACI Australia webinar on ‘Assessing the Impact of the FX Global Code'

This ACI Australia Refinitiv webinar on the impact of COVID-19 on the FX Global Code. My name is Colin Lambert, I'm the Managing Editor of Profit & Loss magazine. And as you can tell, I've already got a frog in my throat. Excuse me. Joining me on today's panel to discuss all things Code and market related are Guy Debelle, Deputy Governor of the Reserve Bank of Australia. And if you'll forgive me, Guy, more importantly to us, the Chair of the Global Foreign Exchange Committee. Chris Knight, Head of Distribution, Liquidity Optimisation for APAC, for XTX Markets. Neil Penny, Managing Director and Global Head of Trading, at Refinitiv. Mark Lawler, Head of Markets Transformation, Planning and Markets Transformation, Corporate & Institutional Bank NAB. And Mark, that is the winner of the longest introduction, the longest job title.

I thought just a couple of reminders for the audience. We will have some polling questions, so I'm going to put the first one up in just a second for you to vote on. Also, you can submit questions via the chat box and for those of you that inevitably ask the questions, yes, it is being recorded and the recording will be made available to download soon after the webinar ends. So without further ado, let's get into sort of subject matter because we've got a lot to cover today. Guy, can I kick off with you? I mean it's been a bit of a roller coaster ride really since February, hasn't it from your perspective, how has the world looked during that period?

I won't so much talk about the world, but talk about the FX world.

Is there another world?

Yeah. The FX world is the only real world, though! This is not going to be news to most people, but obviously we saw a marked deterioration in FX markets in March, particularly in the spot market, a sharp widening in bid ask spreads, a decline in market depth. And we saw significant price moves through the course of the day. A lot of that driven by rebalancing and hedging flows from real money. We saw large flows around the time of the daily fixings, notably the 4:00pm London, but also we saw some decently large price volatility around the Tokyo fix as well as some other fixes. So it wasn't just the London 4:00 pm story which actually prompted us (being the GFXC) to send out a heads up to market participants, particularly around the March quarter end, the potential for large volatility around that, which actually was reasonably well behaved, I think in the end. Some of the factors also, which have gone on behind that: internalisation rates declined for many market makers reflecting a reduced willingness to hold open market positions.

So we saw a lot more stuff go through to the platforms and Neill can pick up on that probably a bit in a second. But yeah, so a lot less internalisation saw the pickup in volumes on the traditional FX platforms as intermediaries were just unwilling to warehouse risk. That was also exacerbated by some operational issues coming from the working from home environment, which reduced the main market makers' ability to warehouse risk just because of the inability to get a really good real time handle on what was happening across the trading book.

So as I said, we saw bid ask widen to their highest level in years and liquidity conditions were particularly poor at the start of our trading day, the Australian trading day, the witching hour, which improved once Japanese markets opened and then improved a little further into London, but still remained really wide and right across all currency pairs, even to Dollar/Euro. I saw some flash events, I don't like to call them flash crashes, as they went down and then they came up. And sometimes depending on which country you sitting in, they went up and then they came down. But we saw some flash events, including some involving the Aussie, very sharp movements in short periods of time.

There was one thing which is useful is just to compare it to 2008/09 or at least I can draw on my own firsthand experience, there was obviously a lot of dysfunction late '08 and into '09. But I think one difference between then and March this time around was, you know, in ‘08/09 the flows were really small and just not a lot going through the market, whereas this time around, March was just huge in terms of volume.

So much smaller flows back in '08 and much more prolonged periods of market dislocation then as well. We saw that obviously particularly in the Aussie. Back then we had long periods of dislocated liquidity. This time around, liquidity wasn't great, but the periods of pronounced dislocation were much shorter in duration, I think, which is an interesting comparison. So March was through the roof. The swap market was obviously very disrupted as well. The sort of scramble for US dollars saw a fairly large amount of dislocation in the swap market. The swap lines were broadened again to jurisdictions like ours and drawing on heavily, particularly in Europe and Japan. Interestingly, ours has barely been drawn on at all, because it's just not been cost effective. But nevertheless, they were introduced to address the dislocation in the swap market.

And then we come through into April and things sort of started to calm down. And then over the last few week,s things have really calmed down and you know, FX, it's really just not a hell of a lot going on in the major currency pairs. Volatility is back to the very low levels it was through most of last year in spot, at least. And so we've gone from, I think, I'm not sure I'll get these numbers exactly right, but in swap, March was one of the largest, or in spot was one of the largest volumes we've seen in a long, long time, in a short period of time. But if you look at April, not only going back to where it was sort of pre all this episode, but it's actually gone through the other side, and actually been quite low, which is interesting.

So for the time being, markets have calmed down quite a bit. We're seeing bid ask come right back down, but not necessarily right back to where it was, and I certainly don't think market depth is where it was, say at the beginning of the year or late last year. It's improved a lot, but I wouldn't say – you know, conditions are somewhere back to sort of eight out of 10. They're certainly not back to where they were about, you know, six months ago or so. So let me stop there, Colin.

Okay. Chris, from your point of view, as a market participant on the front line, I guess, how has it been from your perspective and maybe you can focus on the bit around market participant behaviour during this period of time.

Yeah. Thanks Colin, and welcome everybody. Thank you to Refinitiv for organising today, it's been a good partner for ACI Australia and I'm grateful for that. So just a reminder, I saw a magazine on my desk that dropped in early March and the front page was ‘Who Killed Volatility?’. They say FX is all about timing, so the day that dropped on my desk I guess was when COVID-19 really hit hard and we saw the massive spike in volatility. If we look at it just going on from what Guy said, if we look at it in terms of spreads, we saw spreads then say for the Euro in February blow out to around three times the February spreads by mid-March maybe four times for Aussie and something like Euro-Norway heat up to 10 times the February average.

And those are weekly average as well, so they don't take into consideration the gaps and spikes that we saw in intraday volatility. If we fast forward to today, spreads are still approximately 30 per cent wider than they were. And as Guy mentioned, the market depth is still a little bit lower. When we look at volumes, interestingly, we saw volumes pick up dramatically before volatility did. So the last week of February and the first week of March volumes from the primary markets were about 275 per cent higher but liquidity conditions were still good. In actual fact, on one of XTX's measurements, G10 liquidity was around 15 per cent better than it had been for the start of the year. This, of course, deteriorated very quickly and while we still maintain volumes at 2.5 times normal market volumes for about five weeks, the volatility and liquidity conditions deteriorated dramatically.

We look at liquidity not just as volume and top of book spreads, we also look at daily ranges, intraday volatility, depth of market spreads. And if we look at that, that we would say that G10 probably went to around 40 per cent of its normal conditions and NDFs and EM around 25 per cent of normal conditions. Interestingly, where many people thought that the market was recovering in early April that's when we saw the trough in liquidity conditions, the first week of April.

Fast forward to today and we think liquidity generally sits around 70/75 per cent of where it did earlier in the year. So volumes have normalised now, spreads slightly wider but liquidity is still low and we see that manifest with many gaps and spikes in the market, so moving amounts is still difficult. Thanks Colin.

So effectively you can get as much done as you like until you can't?

Exactly right. Always on one side of the market, you can.

It's interesting because I mean I think looking back to the study of the flash crash in US equities in 2010, there was the huge sort of spike in order flow and trading just ahead of the flash crash, wasn't there? And it's interesting you say there that there was this expanded volume in the markets before volatility. Mark, from your point of view, Guy mentioned FX swaps there, I mean, what was your experience in the FX swaps market? Because I think sometimes that's overlooked isn't it?

Yes. And good afternoon. Again, thanks to Refinitiv for setting up this call. Look what a remarkable couple of months, March when everything came to a head it was across multi-products and the FX forward market, and let's say take typically the three months Aussie swap, which had been trading at very, very tight ranges for a long time, 0.2, 0.3 on a spread increased 10 to 15 times, fairly dynamically, cross currency spreads, cross currency basis swaps went from plus 5, 20 points a day, over a couple of days up to a high of plus 105 as LIBOR rocketed. And you had it across other things, Guy mentioned the FX spot, the vols, the one year vol, which is a bit of a benchmark for spot Aussie went from 9 per cent to 20 per cent pretty quickly.

So it was dynamic. There was a little bit of concern. Spreads went out, but I'd have to say, just as remarkable, as mentioned the return of confidence to the market. Yes, we're not back at pre March levels, and there's a high beta obviously to the equity market and the positive news that's coming out of there. But there has been some good, you know, confidence come back to the market. We've seen, you know, good feedback from customers who yes, the widening of spreads has been well advertised and I think the buy-side has probably been never better informed, maybe as the morning podcasts there that are very commonplace today. But I think there was a reasonably good reception to a reflection on the widening of risk, which has come back remarkably quickly. But yeah, the swap market, yes, it did react. But the swaps increase in margins were manageable and you know, we still saw customers dealing.

Neill, from your point of view, Guy mentioned there the move towards the platforms. I mean, can you sort of talk about your experience from the manager of, you know, one of the primary venues in the market as well as FXall and also maybe just give us a few of your thoughts around the operational resilience of the industry as a whole during this period.

Thanks Colin. I think my thoughts are very much in line with Guy's, Chris's and Mark's. To add a little bit of perspective from what we saw, we saw in the dealer to customer market spreads would double, triple, perhaps quadruple, and then have come back down. And as my fellow panellists have said, not back to exactly where they were, but substantially down from that.

The interbank market, so matching, widened out more than that. So there was definitely a sense of banks continuing to provide, if you like, a smoother service to their customers while the interbank market was going through a period of increased volatility and wider spreads. If I look at the stress to IT infrastructure, what we saw on FXall was it going through three times as many quotes as normal. So we weren't doing three times as many deals, but as the market got more volatile and people started quoting faster we were pushing through three times as many quotes. In our market data business as a whole, I think we did 176 billion updates one day. That's not just breaking a previous record, it's smashing through and obliterating it. So to my mind, the operational resilience of the entire industry to cope with a sudden change from those levels while people were transitioning to a work from home environment is really remarkable.

And so I put overall the progress down to focus by the whole industry over a period of probably 10 years plus since the Global Financial Crisis on e-trading, automated hedging and internalisation, risk reduction, improved processes and then conduct reform, including a better dialogue between banks and their customers. And several other people on the panel have spoken about their reference points on previous crises. For me, the crisis of reference is 2008 where e-trading just stopped working. Many of our customers were told by their banks, the liquidity is really poor, you're going to have to call us for a price. And in fact, if you need the trade done, you should just leave us an order because we don't know where the market is in this size at the moment. As it was in the current crisis, things were much smoother. So spreads widened out, but customers were still able to obtain the transactions they needed. They were able to have full transparency of what those prices were before they traded and I think it's a real credit to the entire industry for 10 years of really hard work.

Members of the audience hopefully can see this. We've put the first poll question up as we transitioned to working from home, what was your biggest concern? So market access being the first, and I guess that is I guess the technology access and the technology resilience. So really to what Neill was just talking about there. Surveillance capability, so the ability to actually understand, you know, that you're doing the right thing and your colleagues are, or maybe the people you're responsible for are or other market participant conduct.

So if you want to submit your vote there. We'll get to those results in a minute. Going back to the panel, I think what I'd like to do now is sort of look more at the Code as a whole. Neill, I'll actually start with you. I mean, I missed all this upheaval we were talking about. How do you think the procedures laid out in the Code worked?

So I think the Code definitely played a part Colin in the much smoother crisis than we might have anticipated. Just some things I would call out. I think the Code has systematically helped create a focus within the industry on transparency, better dialogue between market participants and the use of data and analytics to provide quantitative measures of things like liquidity and spreads. And I think that became really invaluable as the market changed substantially, almost overnight in late February. And if you think about the industry dialogue, we've had over the past few weeks, there's been very little discussion about the market not working or people not understanding why prices are widened. Because I think the Code has helped drive a proper dialogue where, as market participants, people are better informed.

Secondly, I think the Code has taken an area like Last Look, which we know is inherently challenging and just ensured, I think, a high level of education across the industry about what Last Look is and how it works. Ensuring that disclosures by market makers are clear as to how their Last Look algorithms work and inviting a culture where customers are encouraged to ask questions. And during the last month, Last Look rejects did rise necessarily as volatility rose and market conditions deteriorated. But again, there was very little dialogue within the industry about this being problematic.

The third example I pick up is one Guy has already mentioned: the GFXC advisory memo prior to the month, at the end of March fixings. Now as an industry, I think everybody knew this was going to be a big fixing period due to the equity moves. The GFXC provided a focus for central banks and market participants around the world to put these thoughts into a single memo and then send it out globally. Prior to the Code there was no GFXC and there would have been no easy mechanism to do that.

And then I'll just step back for a moment and say look, the Code was always designed to work as one piece and quite a large set of initiatives designed after the Global Financial Crisis. And so ultimately, we can never look at a thing that happened and say, the Code did this. That's not really the purpose of the Code, it's designed to work alongside regulations, changes within market participants themselves and so forth. But I want to say what the Code has done in the broader picture. It's established the importance of good conduct front and centre and industry dialogue in the minds of market participants globally and in panel discussions like this. And it's established that conduct and transparency in disclosures are just as important things for us to talk about, and be aware of as e-trading and algos and liquidity. And I think that cultural change, the safety in dialogue and trust it engenders is probably the highest accomplishment of the Code.

Chris, from your perspective, I mean, Neill mentioned there, you know, the lack of debates around, you know, higher reject rates and so on and I guess it is part of the modern market. You could argue that people should just widen spreads. But I mean, I don't know what you're seeing, but some of the data I've seen, has kind of indicated that some market participants were getting a bit loose with their hold times. Is that a fair observation on my part?

Yes, Colin. You know, some venues publish and some clients publish masked data so you can see other participants’ reject rates and hold times. You know, sadly we saw in March at least one or two of the large LPs blow out their Last Look hold time. With the volatility that going to increase your reject rate, that's going to increase the cost of your rejects when you try and fill them somewhere else. So yeah, that was a little bit disappointing. We've seen though, you know, on the flip side coming into April that on one venue where the average hold time was probably somewhere between 50 and 80 milliseconds earlier in the year up to 150 milliseconds in March. We're seeing that now some 50 milliseconds for the first time on average. So that's a good side. You know, the Code doesn't support adjusting Last Look times for commercial reasons. But you know, that's a behavioural change that we certainly saw.

Guy, from your perspective, I mean we had the three year review of the Code and now the work of the GFXC, as I understand it, is suspended at the moment, obviously due to the pandemic and I guess the strain on people's time. But the survey was completed. Can you run us through the key findings of the three year review?

Yeah, sure. So we put this out in December last year and you can find all this on the GFXC website should you so choose, the Global FXC website. But basically, what we are working on in looking at revisiting the Code three years in, is a few key areas. One thing I would like to stress, as I've done a few times in the past, is these are going to be adjustments to the Code. It is not a wholesale re-write. So for those of you who hopefully have signed up to the Code and are adhering to the Code, it is not going to be a major exercise to go through and confirm you're still adhering to it. We are focusing in on a few key areas.

And another important point to make is with a number of these areas what we're going to be doing is providing potentially more explanatory material and guidance in these areas with not necessarily particularly large modifications to the actual wording of the principles which may remain pretty much as they are. A strong consensus from feedback we got was that the Code remains fit for purpose and one particular aspect of that where this may apply, and Neill is leading this work, so he can probably speak to this better than I, one of the areas we are going to be focusing on is execution because it still remains a very hot issue and one of the primary areas of focus in the market.

So, particularly those dealing with, we've already talked about Last Look, which always comes up in these sort of forums, as well as pre-hedging. In both instances, we may change the wording, but we may just provide more guidance as to these are the sort of issues that we are thinking about and you should be thinking about as a market participant.

So there's some areas around execution is one of the areas, algo trading and transaction cost analysis. That's something which has actually come to the fore since we really wrote the Code and so we need to update the Code to reflect the increased prevalence of that. Similarly, anonymous trading. And e-trading is more prevalent now and some of the areas we're going to focus on there and the usage of tags and the role and responsibilities of the different market participants including PBs (Prime Brokers). And then finally, disclosures is one area where we probably need, like that's one area where I think we need to provide a bit more guidance. The Code at the moment mentions disclosures and says disclosures are good, which is true, but I think we will be probably looking to be a little more definitive in what the sort of things we at least disclosures should have as a minimum.

And then beyond that, the other thing we will still continue to do is try and work on understanding why buy-side adherence has been less than that on the sell-side and working out ways to address that. We've put much more material up on the website to help the buy-side, so if you can go and work out how to look at the Code and how to adhere to it. But we've still got further work to be done there beyond what we've already put up in the last few months.

So you're right, we're on hold, we've got a meeting next month, a virtual meeting of the GFXC. At that point I think we'll look to try and work towards getting work going again as things are hopefully settling down, notwithstanding the fact that the Northern Hemisphere would probably still try and take their summer vacation as they normally do while the rest of us will continue working hard in the Southern Hemisphere.

Well, domestic holidays only, of course. On the point of disclosure is an interesting one because I mean, do you think actually that some of the guidance could be not so much around the minimum but also around the maximum? I say this because I looked at a Form 10Q report, which is quarterly report [audio cuts out] you actually see. And institutionally, it's quite a large market presence and under the disclosures section, things that could affect future performance was pretty much everything down to the tea lady not turning up for work. So there is this risk that disclosures become the get out of jail free card, isn't there?

Yeah, no, absolutely. I think we talked about this before, but yeah, there can be too much. I mean there can be, you know, I regard some of those sorts of disclosures as a very long-winded version of caveat emptor, which is not necessarily where we want to land. So what I think we're going to try and highlight is here are some key areas that should be obvious in disclosures. If you want to fill them with a bunch of gumpf too, so be it. But here are some areas where it needs to be very obvious to get counterparty. Here are some important pieces of information that you need to be across in terms of our relationship.

I'm going to come to Neill in just a second actually because I want to get into the weeds of a couple of those things. But before I do that, Mark, from your point of view, can you sort of give us the perspective and, you know, obviously as a bank in this market as to how sort of, you know, the market has reacted to the Code in terms of disclosures and documentation?

Yes. Well, I think in the early days, the Code has been around since 2017, you know, it's a principle-based document integrity and fairness in things which are mentioned in the first couple of principles, but there's a lot of guidance there which has really enhanced the effective functioning of the market, I believe. Now whether that's been brought to the front line in terms of training, the enhancement of monitoring, but the frontline, I think have never been better trained or supported and the Code has, I believe, directly contributed to that. The buy-side have benefited from that. I think the fairness and the honesty has improved, and it needed to. Disclosures in particular is a tricky subject. I agree with what Chris was saying before that, you know, we can go too far on that.

It has to be effective for the buy-side to understand what's really the message there. So there is a measure of middle ground that we have to get to on disclosures. Industry has got a part to play on that. But yeah, from the banking side and I think it's reasonably universal is that the benefit of trying to deliver a program which enhances the delivery to the buy-side has been a work in progress. But we've seen through this event of March, one of the reasons that it's worked more effectively is to be true to the things like the Global Code.

So Neill, I can't remember the game show, there was a show many years ago that only a certain generation will remember when you have to open the box, or take the prize. Do you want to open anonymous trading, disclosures or algos because I'd like to talk about all three.

It's funny, we were talking at work recently about the Zoom function that puts people in a grid and it looks like the Brady Bunch and half the people on any call, know exactly who the Brady Bunch are have fond memories and the other half have no idea of the Brady Bunch are. So let me open that box! I think it's worth beginning really with two points that Guy made. I just want to echo before I opened the box. Overall our sense is the Code is fit for purpose. The biggest priority remains boosting buy-side adoption and probably the second priority lies in taking some of these new terms in the industry that have evolved since the Code was created like algos and TCA and anonymous trading and ensuring the Code tackles those as effectively as possible.

So this is a particular box. It's an important box, but I think it's important not to think that the Code review is about this particular box. So that said, we used a number of measures to gain industry feedback about what people felt needed to go into the Code review. One of them was the survey whose results are published on the GFXC website. And pre-hedging and Last Look came up from a meaningful minority of people who just feel uncomfortable with the way these practises work in the industry and how the Code tackles them. So the sense that we had at the GFXC was we could not just simply ignore that feedback and say these issues will be put to bed forever in the first review and we won't look at them.

Having said that, it's also very clear given how many hours we spent debating Last Look, pre-hedging and riskless principle that it's very unlikely that another set of discussions will yield a huge advance in the industry's understanding that we can put into a Code revision. So the approach we'd like to take going into the Code is to say that really what we need to do is to create greater insight and understanding within the industry, rather tweak the Code itself. So we're looking to create documents and papers that will explain the issues clearly, create a common industry vocabulary and that market participants ask each other the right questions, so they understand which is the right way to treat their trading objectives.

And so we've spoken, for example, just in this panel about hold times, how should hold times have changed during the March crisis is a really good question. And what we'd like to do is to arm all market participants to have a set of questions like that to discuss with each other to have a better understanding of how Last Look works in the case of Last Look, and similarly for pre-hedging.

I think it's worth finishing just by saying, look, if we find some reason to change the Code and it becomes apparent this is a much better way of treating these principles, we will do. But our expectation at this point, Colin, is that we will create advisory documents and try and raise the industry understanding, but leave the text of the Code the same.

Chris, from your point of view, I mean, does this approach appeal because I mean it strikes me that we are going back to trust again aren't we, and some of the evidence we've had is that people maybe were a little bit quick to change their windows. I mean, is this a problem we can actually solve, do you think?

I totally agree that you're never going to get whole market, the participant base to agree on all these issues. So, you know, we would just push for more transparency and more information. And as Neill said, that's been carried out. If we look, you know, you mentioned anonymous trading I think, you know, there's people, there's liquidity providers that have possibly not signed the Code. Some venues might pass tags pre-trade so it could give an opportunity to a participant to adjust their hedging or their Last Look time or rejects, but the reject rates based on the tag. Other venues will pass those tags at the end of the day. So you don't have that opportunity. Things like that. It's just to make those transparent so people know who they're dealing with or know the type of firm they're dealing with and what possibly could happen to them. So, you know, I understand the Code is about giving people choice. I'd just like it to be informed choice and informed choice comes through that transparency and better disclosures.

Guy, the other thing that I guess you brought up in your summary of the three year review was the algos. Do we need to be careful, we don't go too far to, I think it's Reg 18, in the US where people are asking for the Code? I mean is your instinct that what we need to do is be more transparent on how the algos work without giving away too much information. Is that a balance we've got to achieve?

Yes, but it depends on the regulations of other jurisdictions. But yeah, I mean I think it's always useful to know how your algo is going to work, that's not a bad starting point, I think, or have some pretty good idea about how it's going to work which, which is what we actually say in the Code even in its current form. I mean I think where we're going is that we are looking at some of the developments that have occurred. It's more prevalent now than it was three years ago, and it's really, I think it's like Neill and Chris it's sort of keeping up with how the market have moved on. And I think it's also so that people know what they're getting. When they're utilising the algos. I think the person who's distributing the algo, that they be very comfortable with what they're doing and how it works. But I think it's just as important, particularly the way that they use it now that the people are sort of using third party algos, are well aware of what they're doing and what impact that might have on the market and on what they're trying to achieve.

And Mark, I mean, the other thing that came up there that tweaked my interest was I guess we'll call it the adherence piece. I mean, you know, Chris mentioned there are some LPs out there that maybe haven't signed. There might be some Prime providers out there and we certainly know there's some buy-side that hasn't committed yet. But I mean, do you think the adherence question is still relevant? I mean, do you think we need to maybe raise the volume on the adherence debate and the statement of commitment debate again?

Well, we need to make it work. The take up rates has been hotly debated amongst the committees, the regional committees, and the global committee. We need buy-side to be an equal partner in this and we've talked about percentage you know, not a total adherence to the total Code, it's picking out the areas which are applicable to that particular business if it's too onerous. But really, I think as the market matures and we come through events like we've just come through and we've seen the benefit to the sell-side, the buy-side has got to take responsibility as well. And I think it's fight we've got to keep going with and that will come through associations, it will come through, you know, talks like this, but also just keeping it out in front of mind. I think the buy-side have a responsibility and we've just got to ensure that it happens. It's going to take time. We've seen that probably hasn't happened as quickly as we wanted to, but it will do. I think once there's confidence to the buy-side that that's not that onerous and there's a benefit there that we'll see a greater takeout from the buy-side.

Neill, would you also sort of agree that maybe in the platform world, you know, the technology provider world, we maybe do a little bit more in terms of transparency of what's delivered to clients and maybe what's delivered to the public so people get a better perception. I mean it's interesting, there's a lot of sales pitches that will be made out there over the months when we come out of lockdown. But a customer's choice on what venue to use is fairly limited to what they're told by that venue, isn't it? I mean, do we need more transparency from the platforms?

Well, I think we're moving in that direction, Colin. So we have, for our customers, we have operational procedures that outline exactly how our venues work. We encourage all our customers to come with questions if they have them. We steadily build up the set of statistics that tell participants using our platforms exactly what is going on in quantitative terms. Last Look, the hold times, how our customers are distributing their business between different market makers. So I think you're right, there's never enough or sufficient transparency. There's always more that could be done and that's the way that the industry is moving. I'd just add, I mean it's driven by market participants who are using these platforms, having specific requests about the type of data that they need and statistics they need and that's what platform providers should be responding to.

We're going to go to the second poll question for the audience, drum roll please. So which of these issues related to the Global Code concerns you the most, conduct on anonymous trading venues, the use of Last Look, buy-side adoption or the transparency of disclosures. So effectively, we're asking you to vote on what we've been talking about for the last 15 minutes. This should be rather interesting. While we do that, I'm actually going to go to some of the audience questions we've got on the chat here. Chris, one for you here. I mean you mentioned there's more to managing liquidity, but how quickly can you analyse and determine a strategy to manage liquidity during market dislocation? And is it real time data driven?

That's a good question.

I can tell you that because it's not one of mine.

For my firm, I guess, you know, being a hundred percent electronic, that's what we do day in, day out. So it's the value in our system. I would argue it's more and more difficult for human traders these days because there's not just the speed of the market, but there's so many different inputs to analyse. You know, I would say the good voice trader, gut instinct, is probably picking up a lot of those things that we're looking at. When I talked about the depth of the book, the intraday volatility and so on. We produce this data for our clients in a weekly format, I don't think there's too much value in it, either shorter than that. There'd be value in seeing it live, but that's our IP. So you know, we wouldn't be sharing that.

Mark, is this something that is on the agenda NAB?

Well, yes, I mean we still have a voice desk but we also have algo execution as well. So voice is still a critical part of the market. When there is an event, that occurred through March, you know, we see an increase in voice execution and you know, you get a dynamic feedback straight away on the sense of the market through the pricing through voice. The algo is something which is developing as Chris just mentioned, it is IP and it's harder to deliver. But it will grow and I think it will get more effective as time goes on.

I'm going to skip the question on where we think … if someone wants to answer it, I mean, does COVID-19, could it trigger any significant fundamental shift in volumes across the data centres? I guess across the geographies? I mean that's kind of a function of liquidity isn't it, I mean, probably people will run to London in times of stress and then it will balance back out again. Guy, from your point of view, a question here, I mean, how well is the FX Code progressing in emerging markets?

Not too bad. We've got reasonable reach there, but it depends what you define as an emerging market these days. But I mean it's a very strong take up in China for sure. Brazil, Mexico Indonesia now, Thailand are working on adopting it. I mean I'm just picking names out of random here, as I'm slightly leery about who I'm going to label an emerging market. But let's put it outside G10 currencies, let's go with that. But India, Korea have been members of the GFXC from the get go as have all the other ones I've mentioned so far except for Indonesia, which has just joined recently. South Africa, a number of countries in Eastern Europe as well. So it's pretty broad. I mean by market turnover we're somewhere, well past 90-odd, well into the 90 per cents of turnover. So yeah, it's pretty broad. And the composition of the GFXC today is not 50-50 G10 and non-G10 currencies – we're not miles from that. You know, I mean, you know, Russia is another member. So yeah, the breadth across the EM space is pretty large.

I'm just looking at the results of our second poll question. As it was with the first it's pretty much, I think we've got a broad spread here, haven't we, I think there's plenty of work for the GFXC to be doing here. Conduct through anonymous trading venues, just pipped by transparency of disclosures. Interestingly, buy-side adoption is the lowest there, but there is a question from the audience here and Guy, I'll stay with you. You've spoken about regulators calling the buy-side CEOs and encouraging code adoption. Has this yielded any success?

Yeah, well, I mean we've had some more sign up, so that's good. We've also got a number of, as I said, so we've got a number of buy-side members on the GFXC currently who are working, including one in Australia, Stuey Simmons, who's been doing a lot of work in this space and leading by example in getting buy-side firms to sign up. I mean one of the other hooks we've got is that if you want to be on a local foreign exchange committee, you have to have signed up for the Code. And at the same time, most committees are looking for a breadth of membership. So that's another way where we've got reasonable buy-side take up.

I mean the other thing we are doing is, and we're doing this in our market, and it's happening in the UK and a number of other jurisdictions too, is we are going and talking direct with the buy-side firms and trying to understand what their problem, any issues they might have and working with them to try and address it. So particularly the larger participants and just understanding what, you know, what is the blocker, if any, or is it just a question that it's too far down their to-do list.

We can't do a hell of a lot about that beyond trying to emphasise that we don't think it's that onerous, we think it's basically in their best interest and we would expect that actually this is the sort of stuff they would be doing as a matter of course anyway. So yeah, so we've had a number of large buy-side firms sign up quite recently. But you know, it's still something we continue to focus on and understand what any of the inhibitors are and doing our best to address them or dispel any misconceptions about them.

Colin, could I just add to Guy's answer and just talk about some of the grassroots work we're doing on buy-side adoption.

Please do.

So I think two areas that we've identified that can help and we've started work on this, the first is and lots of buy-side participants will go to a presentation or hear a panel about the Global Code. They'll think this sounds interesting. This sounds like something we should be adopting within our Treasury, but they don't know then what the next step is. And they don't have a whole team that they can delegate to finding out. So one thing that GFXC has produced is a guide to how to adopt the Code, kind of the step by step, this is what you need to look at. These are the things you need to think about so that you can kind of walk your way through it.

The other thing we started to do is to look at the concept of proportionality in the Code and try to make that easier for people to digest. So proportionality is the idea that different parts of the Code will apply differently based on the type of market participant you are and the size you are. But again, it's a case of without any further guidance, you have to read the Code in its entirety and then work out how proportionality applies to you. So we're doing some work and starting to break down the principles by type of market participant, size of market participant to say, look, if you're thinking about adopting the Code, these would be the principles to look at first. The others are all applicable, but start with these and just providing a way in. Because I think to Guy's points, the Code is not onerous, but it can seem onerous and really trying to provide an easy fluid pathway into a buy-side company to adopt it, is something we're working very practically on.

It's interesting. I mean there's comments coming in from the audience, which is great, please keep them coming. Something just popped up here. Does the buy-side have issues around proven adherence rather than issues with the Global Code?

In my view, no, because I think it's actually quite – demonstrating is the word I'd use rather than proving, but no. I think if you've got an FX trading desk in house, I often find some of the distinction a little stark, particularly in this day and age. There were a number of firms who I'm not sure where exactly I'd classify them. But if you've got FX in house and you've got a trading desk in house, I don't see that what you're looking at is all that much different from what a sell-side bank is. But and it partly comes to Neal's point around proportionality. But if you're basically primarily a user of, an occasional user of the market, then actually the benefit I see to you is more in understanding what you should be expecting from your counterparty and demonstrating your adherence to it is actually very straightforward, I think, because your level of engagement is pretty narrowly defined and that makes it that much easier. And what you really, the value you mostly will be getting out of it, is understanding way your counterparties should be interacting with you.

And it's interesting, just while you're there, Guy, I mean just to reiterate, I think to people, because a question has come in, just asking how to comply with best execution for regions, not on electronic platforms such as MTFs and so on, but it's probably important that we reiterate the fact that the Code is not regulation like a best execution policy isn't it?

No, it's demonstrating appropriate execution, it's not best ex, we don't say anything at all about best execution. It's how to execute appropriately in the market. You know, with any luck for you as the market participant, that's best execution, but that's more on you in terms of what's best for you. The only thing I would say is that we do make the point that best execution does need to be appropriate execution.

Chris, from your perspective, I mean, do you sort of feel, we'll get to the stage where people will approach counterparties in a different fashion if they have or have not signed up to the Code? Or do you think that's just a pipe dream for Code adherence?

Maybe it's optimistic, but I think that's already happened. You know, we try and differentiate ourselves with our zero hold time, you know, signing the Global Code and so on and you know, so we spend a lot of time pushing transparency, fairness and a lot of these issues that we think are important. And I guess it's about education and, you know, the sheer number of people that have signed up to today's weather data shows that people do have an interest in it. And also, you know, that polling question, seeing that anonymous venues was you know, equal first there with disclosures shows where people are probably going to concentrate on next.

And just to close out the buy-side here, another question from the audience here. Has the GFXC engaged with bodies that are responsible for overseeing national codes and I guess in particular looking at codes that asset managers and asset owners may have made commitments to? I mean, is that a course of work that's ongoing, Guy?

Yes, is the simple answer to that question. Yeah, I mean, in a number of the jurisdictions including our own we've had plenty of interaction with the major buy-side groups.

Mark, let's just move this along because I'm conscious we've only got about five minutes left, but I have the events of the last two or three months raised any sort of other issues for you? What areas do you think we maybe should be looking at a bit deeper?

Look, there's probably a couple, but the first one would probably be benchmarks. I think the benchmark in particular, the main one in London 4:00pm worked very effectively through the period of increased volatility and towards the end of the month. But there were a couple of days there where spreads maybe weren't consistent with the average when things weren't happening. And we just need to make sure that for sake of continual improvement and transparency that we continue to ensure that benchmark execution is as transparent as possible. And that if customers do have a question or an issue that we can address that in a timely, and the channel there is there for them to raise that. That's one area that I'd like to touch on. Perhaps, the question of settlement. But it's a very broad thing. CLS is very dominant in the market. And the Code is not about, you know, the intricacies of settlement. But maybe the process of T plus 2, can be looked at with counterparts to make it a more effective market and a better market. They'd be two areas that I'd like to have a closer look at.

Chris, from your point of view, any issues raised in the last couple of months?

You know, I think it's like slightly off topic of FX here, but seeing the basis blow out in gold you know, which was a result of COVID and Swiss refineries being shut down, planes stopping, so people couldn't fly gold bars to the US and negative oil prices, just is a good reminder that there's risks in the market that you can't even think about. So we couldn't second guess either of those things happening. So, you know, I think just understanding your own firm's risks is so important and anyone that thinks we've returned back to norm now is, I think, mistaken.

I mean there's a question there, Neill, isn't there, like do you think we were faked out by March?

I think so in terms of you know, there was a month when 'the who killed volatility' magazine cover looked incredibly irrelevant and now it looks relevant again. So I think we need to be mindful that none of the fundamental drivers of low volatility at this point seem to have changed whether it's low interest rates, an increase in internalisation by market makers, a reduction in FX as an asset class. And things may obviously change in the future, but it feels like the path we've been on the last 10 years is actually the one the industry will continue down. And I would highlight that for me, the things that have come out of the last month or so are things we've been working on as an industry, but now realise there's more to do. I would pick out a particular one, continued electronification of markets.

The asset classes that were more electronification had an easier time moving to a virtual working environment. The ones that still relied on people talking to each other who were in the same office. And the other is control and compliance frameworks within banks. Banks have spent 10 years locking down their trading floors, can't use a cell phone on a trading floor, you can't use webmail on a trading floor and now all of a sudden, those employees are, are spread into multiple different places. It becomes necessary to add some new controls to circumvent the ones that don't work because people aren't in the same physical building.

So I do see the industry reacting to what's happened over the next year or so, building out electronification and audit controls and compliance.

Well there's the results of the poll that we just put up there. I mean, Guy from your perspective, I mean, can you sort of summarise some of those thoughts from the last couple of minutes? I mean, Mark's issue on settlement risk, I mean obviously settlement is covered in the Code isn't it? Can the Code support efforts to, you know, as the BIS put in their recent report around, you know, raising this issue of settlement risk and can the Code support maybe a potential or possibly evolution of benchmarks?

The settlement one we're talking about at our next meeting along with CLS and the BIS Committee the CPMI, which has a strong interest in that. So settlement risk is absolutely on the table trying to understand to some extent how much of an issue it is. We know about the issue in terms of coverage in EM, but and that's something which needs to be worked on, but more within G10 working out whether or not settlement risk is or is not increasing and get a better handle on, if so, why? And what should we do about it? And it's actually one of the issues that potentially is related to is the degree of internalisation, which may in principle at least reduce settlement risk.

On benchmarks, I mean, you know, it's been a - I was going to say happy hunting ground - I suppose we'll go with that, of mine for a number of years. I mean do I think it's something work looking at? We actually talked about this in December and at the GFXC meeting then, and people were broadly comfortable with it. I think once we did push was it'd be useful to have the administrator WM/R, without wanting to pick on them,- they should have their user group. We don't see much visibility around that. I think that would be good to see more or to understand whether or not there are issues out there. I'm not convinced that there are. I know you are, but I'm not a hundred percent convinced that they are out there' But at the very least it would be useful to have a good debate around that and work out is there a problem? And if so, what should we do about it? Or if not, then great. we can all be comfortable with that.

It's an incredibly important piece of the market infrastructure. I mean, so we do need to understand what's going on there and we do talk about it obviously in the Code which reflects the stuff we put out in the Benchmarks Report a few years back now. The only thing I would say to Mark's point is markets were volatile in March, really volatile. So, I don't find it overly surprising that volatility included yeah, the 5 minutes at 4:00pm on a London afternoon when you've got massive flow going through the market. So I think people have to be mindful of that when they're writing about this, is March was just a straight out volatile period. And it was obviously going to be volatile too during that period. But nevertheless, it is something that we, I think need to revisit and at the very least keep an eye on.

As someone who writes about it quite a lot I would also point to the end of April being an issue there. We've run over, sorry if you want to … that's me always trying to get the last word in. So we'll close it out now. Thanks to everybody for listening to ACI Australia for staging this event. Thanks also for your questions. Some of them we couldn't and some are probably not for this forum, but thank you anyway, for your participation, we appreciate it and I think at that moment there, thanks to the panellists and thanks to you for listening.