Transcript of Question & Answer Session Panel Discussion of the FX Global Code at the GFMA Global FX Division

James Kemp, Managing Director, GFMA Global FX Division

So, the key reason that we're here today is that today marks the launch of the Global FX Code, something that's been in the making for two years. We're all very conscious of the misconduct cases of the last few years and I think this had been a tremendous effort by the industry or market participants to develop this code so it marks a major milestone in the rebuilding of confidence in this vital market that underpins global trade and investing.

A few questions to kick us off. Everyone here should know about the Global Code and 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, Deputy Governor, Reserve Bank of Australia

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 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 the code of conduct and come up with ways to get people to actually adhere to the code of conduct. And it was a very much – I think there are a couple of things to emphasise - it's very much a public/private exercise. So it was the central banks working with the private sector, with the market participants group.

Alongside the code we've put out today, we've put out our blueprint for adherence which has a number of dimensions. 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. And this code – I think there are a two important elements just to finish off. One, it is a single code, so it's replacing those existing codes. And secondly, it's a global code.

James Kemp

And in the market practitioners group, probably Adrian is best to answer this one, was there sort of fierce debate across the general principles or was it a constructed process getting to this point?

Adrian Boehler, MPG Member & Global Co-Head of FXLM and Commodity Derivatives, BNP Paribas

Yeah, a couple of important points, to reiterate what Guy said before, the construct of the MPG is very, very important, okay. It's not just a 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. And 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.

James Kemp

Are you seeing changes in behaviour, positive moves, etc?


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 in 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 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.

James Kemp

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. What does the word likely mean and does it mean that Last Look is, you know, pre-hedging in the Last Look window, it still is as it were, alive and kicking.

Simon Potter, Head of Markets, Federal Reserve Bank of New York

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 had 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, you know, this is an area where the incentives can be a problem. What's happening is, in the way that 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.

Chris Salmon

We did debate the issue around trading and the Last Look window extensively during the period and the language in principle 17 about likely inconsistent is 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 to try and get further information from the widest range of market participants about that particular aspect of Last Look.

James Kemp

The code is very clear about increasing disclosure, increased transparency. Would you expect going forwards – for Guy and Simon, would you expect to see it start to be incorporated into the disclosure statements that people have with their clients, the sort of public statements and disclosure.

Guy Debelle

If you've 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 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. The 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.

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 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.