GFXC Survey Finds General Satisfaction with FX Global Code

The Global Foreign Exchange Committee (GFXC) has published the results of its 2023 survey of the FX Global Code, including, for the first time, questions around the effectiveness of previous alterations to the best practice document.

The survey helps inform GFXC decision making when it comes to the next review of the Code, which is due this year, although the over-riding sentiment seems to be – with the odd exception – satisfaction at the Code’s effectiveness. Notably, while there were slightly less respondents than the last survey in 2019, 45% of those completing the survey had not done so before. Of the 333 respondents, 53% were categorised as sell-side and 43% buy-side.

Awareness of the Code remains high at 81% of respondents being “familiar” or “very familiar” with its contents and adoption has also increased, with 68% fully adopting the document, up from 59% in 2019. The Code is seen as “comprehensive” or very comprehensive” by 42% of respondents.

One of the key targets for the GFXC over the past three years since the revision to the Code has been increased buy side adoption, and the committee says that while awareness adoption has grown in this segment, only 51% of buy side respondents had fully adopted the Code, compared to 80% on the sell-side. Equally, 16% of buy-side respondents were either “unfamiliar” or “very unfamiliar” with the Code.

Another target for the GFXC has been to make the Code more accessible and easier to adopt, and to this end, the average time to implement to Code was 10 months, with staff training (84%) and incorporating it into internal policies (81%) being the most common steps take for implementation.

Continuous training is also high, with 91% of respondents providing some form of Code-related trading every two years, mainly through e-learning such as ACI’s ELAC, and internal classes and seminars. The main challenges to ongoing adherence are seen as adjusting internal procedures (36%), establishing an appropriate level of training (32%) and maintaining audit trails (27%).

Statements of Commitment (SoC) remain the most popular way to demonstrate adherence (89% use this), although only 56% have actually posted their Statement on a public register. The SoC does appear to have become more important to participants judging their counterparties – in 2019, just 8% required an SoC, and 61% “expected” it, in the latest survey 21% said they would reduce or cease trading with a counterparty that failed to meet this requirement. That said, only 7.5% still “require” an SoC, and 51% “expect” it.

Last Look, Pre-Hedging, Still an Issue

Although the majority of respondents believe that the introduction of the Code has been “positive” or “very positive”, and their experience of desirable behaviours in 2023 was broadly similar to previous surveys, the same areas continue to vex some. Pre-hedging, last look, mark-ups and reference price transparency remain the areas where desirable behaviours were “less frequently observed”.

Over 16% of respondents were unhappy with transparency around last look practices (9.91% “occasionally” saw appropriate transparency; 5.11% “rarely” and 1.5% “never”); while slightly more were concerned with pre-hedging (13.51%, 3% and 1.2% respectively); and slightly more again about mark-up transparency (12.31%, 4.2% and 2.4%).

On a related note, just over 12% were concerned about a lack of transparency in how counterparties prevented manipulative behaviour. More heartening, however, is the finding that around market colour and the treatment of confidential information, most respondents are content – the same can be said for order handling and the appropriate training of counterparty staff on ethical and professional standards.

There was a split on the effectiveness of the last look and pre-hedging guidance papers published alongside the 2021 update to the Code, with 49% finding the last look paper “effective” or “very effective”, while 47% had the same view of the pre-hedging paper. It should be noted that just 1.5% of respondents found the last look paper “ineffective” (just under 30% were “neutral”; while 2.1% found the pre-hedging paper “ineffective” and, again, just under 30% were “neutral”.

Almost 68% and just over 71% of respondents respectively, thought the last look and pre-hedging guidance paper be incorporated into the Code. The GFXC says feedback from those in favour of inclusion highlighted factors, such as having a single source of best practice, and having a clear market consensus regarding the relevant Principle.

Effectiveness

Perhaps unsurprisingly given the broader attention on the subject, the changes to FX Settlement principles were seen as “effective” or “very effective” by more than 50% of respondents (the majority as “effective), while a slightly higher percentage thought the changes to anonymous trading were a positive. Changes surrounding algorithmic trading were also seen as positive, albeit to a lightly lesser degree.

The changes were helped by the release of Algo due diligence and TCA templates , which 43% of respondents found useful – almost the same percentage (46%) were happy with the disclosure cover sheets that were introduced at the same time, although perhaps concerning is that 42% of buy-side respondents were not even aware of the cover sheets.

Satisfaction overall is highlighted by 71% saying they did not think the Code needed to be amended in 2024, mainly because it is still see as fit-for-purpose. FX Settlement risk

mitigation, the role of custodians and prime brokers in the FX ecosystem, and the potential to include best practice on Diversity, Equity, and Inclusion (DE&I) were all cited as potential areas of focus were it to be changed.

Finally, the Survey asked which, if any, data availability topics the GFXC should focus on. Of

the 246 applicable respondents, 57% selected “improved access to benchmarking data for FX derivatives”, 38% specified “enhanced transparency around user-generated trade data”, and 33% mentioned “availability of trade and market data for delegated execution”.