GFXC Seeks Feedback on Proposed FX Global Code Changes

The Global Foreign Exchange Committee (GFXC) has published a request for feedback on proposed adjustments to the FX Global Code arising from its recent three-year review of the Code, including amendments to five Principles, as well as the Disclosure Cover Sheets for liquidity providers and platforms.

Respondents have until 25 October to provide their feedback, after which, the proposals will be finalised and reviewed by regional FX committees, before potential approval at the December GFXC meeting ahead of publication of the revised Code. Changes to the Cover Sheets will follow in the new year, the GFXC says.

The GFXC says it has already engaged in extensive consultation with the members of regional FXCs on the proposals, which were developed by its working groups, and is now seeking input from other market participants from all sectors of the industry.

Unsurprisingly, given the focus on the area from the authorities, a key focus for the revisions is settlement risk, but data, a recent issue raised by the GFXC, is also covered. On settlement risk the proposed amendments seek to clarify that settlement risk exposures should be treated in line with other credit risk exposures to the same counterparty and simplifies the language around estimating their size and duration. They are also aimed at strengthening the language around discouraging the use of multiple settlement instructions with the same counterparty, as well as clarifying the difference between “standard settlement instructions” and “settlement instructions”.

The proposed revisions to Principles 9 and 10, which deal with order handling, are mainly aimed at enhancing transparency around the use of data post-trade. They will deal with how e-trading platforms share data with third parties, such as TCA providers, compliance and audit. Adjustments to Principle 10 seek to improve transparency in “delegated execution” activities, i.e. deals executed as a principal by custodians, prime brokers, FCMs and hedging service providers.

Under this type of execution, the principal initiates the trade on behalf of the client as authorised under a written agreement in advance of trading. These obligations enable the client to have greater visibility on order handling by the principal, transparency on fees/costs, and enhance the ability to conduct post- trade reviews to assess the quality of execution.

The onward use of data is the main change recommended for Disclosure Cover Sheets with three additional questions and the provision of a link to the Disclosure Sheet if data sharing is involved. The GFXC has also recommended the addition of a data table to be included in the current platform disclosure sheets.

“While the Code is still considered fit for purpose, the committee must ensure it remains current with industry practices and market developments,” says Gerardo García, chair of the GFXC. “The proposed changes focus on key areas that the GFXC identified from the invaluable input received from the BIS Markets Committee, local FX committees and market participants. The amendments are designed to enhance guidance on FX settlement risk mitigation practices, encourage appropriate reporting requirements and promote greater transparency on the utilisation of FX data”.

The feedback request can be found here, while the proposed changes to the LP disclosure sheet is here, and the platform sheets here.