Updated FX Global Code Published
Posted by Colin Lambert. Last updated: January 27, 2025
Trading platforms will have to explicitly state what they do with data derived from client transactions, whether executed or not, and market participants initiating client orders in a principal role should operate under more transparent, granular and explicit conditions, according to the updated FX Global Code, which was published Friday by the Global FX Committee (GFXC).
The updated best practice document has been published following the GFXC’s latest three-year review, and contains tweaks to five of the 55 Principles (P9, P10, P35, P50, and P51) and minor changes in the Disclosure Cover Sheets.
Settlement risk, a major focus of the review due to the growing share of the $7.5 trillion daily currency market being exchanged outside the scope of industry settlement utility CLS, was the dominant feature of the updated Code. The review concluded that market participants should consider a “hierarchy of settlement methods” and utilise a risk waterfall approach to collectively cut the risk of a counterparty failing to get paid.
“Despite industry efforts over the last few years, there is still a material amount of unmitigated FX settlement risk in the financial system,” the GFXC said post-review. “The GFXC therefore identified a need to further strengthen the Code’s guidance on FX settlement risk mitigation.”
The Committee also made changes to the standards governing the measurement, monitoring and control of FX settlement risk and the use of Standard Settlement Instructions (SSIs). “Changes were also made to Principle 51… and [to] discourage the use of multiple settlement instructions with the same counterparty for a given product and currency. For completeness, the Code’s Glossary of Terms was also updated to include definitions of ‘Standard Settlement Instructions’ and ‘Value Date” the announcement reads.
The revised version of the Code was published after an extensive process of review and public consultation and it supersedes the previously published 2021 version. The GFXC concluded that the set of principles first published in 2017 were appropriate.
“Based on the feedback received through these channels, the GFXC agreed that a targeted review was adequate as the Code is largely considered to be fit for purpose,” the GFXC says.
The changes came about due to the GFXC’s recognition of “the value that data related to trading activity holds.” Enhanced transparency obligations around delegated execution activity, especially if the provider acts as a principal from a counterparty perspective, was also identified as a need.
“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. The revisions to Principle 10 call for enhanced transparency obligations which will 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 industry body says.
The review also updated the disclosure cover sheets which were developed by the GFXC in 2021 with the goal of improving the accessibility and clarity of existing FX market disclosures. The changes reflect the revisions made to Principle 9 and include additional detail to reflect changes to data transparency and third-party requirements. “The goal of these amendments is to provide “helpful information” for market participants to “compare how the interaction data produced through their FX market activity is being utilised among third parties,” the GFXC says.
The updated Code also includes new links in its foreword section that highlight other existing GFXC reports, most notably the further guidance documents targeting last look at pre-hedging. “These reports are intended to facilitate wider awareness and understanding of specific aspects of the FX market and, where relevant, describe how they relate to the Code’s principles,” the GFXC states. “While these reports are not part of the Code or the Statement of Commitment, they contain useful explanatory material and offer insight into the practical implementation of the Code principles.”
As has become the norm when an updated Code is published, to allow time for the industry to adjust, the GFXC acknowledges that some participants would be more affected by the changes, and has set a 12-month period as “reasonable” for those affected to align their practices. It is also likely to that firms will be encouraged to renew their Statements of Commitment to the FX Global Code in that time.
“In terms of the 2024 Code Review, there has been strong GFXC support for the final proposals of the FX Settlement Risk and FX Data Working Groups,” says Gerardo García, chair of the GFXC. “The Code amendments clearly address the concerns that market participants and local FX committees expressed during the review process and are consistent with the objective of having a more robust and transparent FX market.”