New York Fed Calls for Increased FX Global Code Adoption
Posted by Colin Lambert. Last updated: June 23, 2022
As the one-year anniversary of the updated FX Global Code approaches, two senior members of the Federal Reserve Bank of New York’s Markets Group have highlighted the document’s benefits and warned against complacency in adhering to its principles.
In a blog post on Medium, Lorie Logan, currently EVP in the Markets Group and manager of the System Open Market Account (SOMA) for the Federal Open Market Committee (FOMC), (and who was recently named as the next president and CEO of the Federal Reserve Bank of Dallas), and Anna Nordstrom SVP in the Markets and is head of the New York Fed’s international markets function, observe that the FX market “serves as a public good” and its integrity is important for maintaining the public’s trust in the financial system. “Therefore, every market participant, regardless of its size and complexity, has an interest and a role in contributing to a fair and effective market,” they state.
The results of a comprehensive review of the Code resulted in an updated document being published in July 2021, with the Global Foreign Exchange Committee (GFXC) suggesting at the time that most market participants should be able to review and, if necessary, re-commit to the Code within one year.
The focal point of many reviews of the code has been around last look and specifically zero additional hold time on trade requests, this has led to the majority – but by no means all – of firms adjusting their Disclosures to incorporate the updated last look guidance.
Another seemingly perennial issue for the Code is buy side adoption, and in the blog post Logan and Nordstrom point out that contributions from the buy-side were “particularly helpful in further promoting disclosures and transparency and introduced debate on important topics resulting in the advancement of good practices”.
They write, “Broadening Code adoption among buy-side participants remains a focal point for the New York Fed because we recognise that diverse representation is essential to the relevance, effectiveness, and longevity of the Code.”
The New York Fed completed its own review and renewed its commitment to the Code in April 2022 and the writers stress how the central bank expects the organisations it interacts with to do the same, reinforcing the message of proportionality, noting, “Although not all of the Code’s principles apply directly to the New York Fed’s FX operations, signing the statement of commitment demonstrates our recognition of the Code’s value both for our own institution, and for promoting the integrity and effective functioning of wholesale FX markets.”
The post also acknowledges one of the challenges the Code faces in the US, where regulated markets tend to have a higher profile, by observing that it is not law or regulation. That said, they argue that sustainable, fair, and effective markets depend upon a continuous commitment from all market participants to adhere to its principles, particularly as the FX market continues to evolve. “We must not remain complacent. We strongly encourage all organisations to support and contribute to market integrity, regardless of the size or complexity of their FX operations. Firms should review their business practices against the Code’s principles and consider formalising their dedication to good practices by signing a statement of commitment and posting it to a public register.”