GFXC Sees Increased Adoption of FX Global Code

The Global Foreign Exchange Committee (GFXC) has reported “significant” advances in adherence to the FX Global Code at its virtual meeting, with current chair Gerardo García, from Banco de México, saying that during 2023, the GFXC Global Index of Public Registers reached 1,290 Statements of Commitment, an annual increase of 8%.

“This reflects considerable progress in the uptake of the Code,” García says. “However, we remain focused on increasing adherence among a diverse set of market participants”.

On behalf of the former Proportionality Working Group, which concluded its work earlier this year, Richard de Roos  from Standard Bank Group presented statistics on the use of the Proportionality Self-Assessment Tool, and acknowledged its benefits in terms of promoting adherence to the Code.

In turn, GFXC co-vice chair, Stefanie Holtze-Jen, from Deutsche International Private Bank, provided updates on the Code Adherence Working Group’s efforts to increase visibility of the FX Global Code; on its engagement with credit rating agencies and auditors to include the Code as part of their assessments of governance within institutions; and on the progress to incorporate the Code in professional certification programs, such as the Chartered Financial Analyst (CFA), Certified International Investment Analyst (CIIA), and Association of Corporate Treasurers (ACT).

Two topical issues were covered during the meeting. These were the work by ISDA to update the 1998 FX and Currency Options Definitions, and the impact of accelerated securities settlement on FX markets. GFXC members welcomed ISDA’s ongoing work to update the definitions, and examination of potential solutions for unscheduled holidays as it pertains to FX transactions.

In the panel chaired by GFXC co-vice chair, Simon Manwaring, from NatWest Markets, on accelerated securities settlement and its impact on FX markets, representatives from Global Financial Markets Association and CLS Group reviewed the challenges and possible solutions for FX transactions related to the expected transition to T+1 securities settlement in a number of countries, most pertinently, the US. Participants noted that the reduction of the settlement cycle could impose additional complexities to post-trade processes, and that a closer coordination of security and FX settlements might be warranted.

The meeting also heard from Seshsayee Gunturu at the Reserve Bank of India, who presented India’s experience in reducing the equity market settlement cycle from T+2 to T+1. He noted the importance of having a clear implementation timeline and of taking actions that mitigate market disruptions, such as extending cut-off times along the settlement process.

The Committee also discussed recent trends in FX market structure, including fragmentation, electronification, and the use of algorithms all of which are growing trends in FX markets and, as such, will be closely monitored by the GFXC.

The GFXC also supported upcoming efforts by select local foreign exchange committees (LFXC) to begin FX settlement data collection as part of the LFXCs’ semi-annual FX volume surveys. This global effort will enable more frequent collection and assessment of FX settlement risk, and is anticipated to launch in April 2024, although the Australian and Japanese committees have already published some data.

Heading into 2024, the GFXC discussed preparations for the upcoming three-year review of the Code. As part of this, it reviewed the results of the 2023 FX Global Code Survey and observes that results indicated that a significant majority of market participants thought that the Code remains fit for purpose.

Notwithstanding, the GFXC says it will engage with LFXCs further and finalise the priorities for the three-year review of the Code. The GFXC discussed the importance of maintaining a continued focus on topics such as FX settlement risk mitigation, enhancements to data transparency in FX transactions, and the use of disclosure cover sheets.