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Central banks agree new rules for FX market conduct
[LONDON] Banks must stop traders sharing order information under a new global code of conduct that bans traditional slang usages and gives dealers more guidelines for what they can and cannot say about the world's biggest financial market.
The 8-page document, seen by Reuters, is part of efforts to head off abuses after two years of scandal over market manipulation. It was agreed this month by the foreign exchange market committees run by all of the developed world's major central banks.
It will sit as a global guide on top of the existing codes approved by each committee and also instructs asset managers to work harder at ensuring they are getting the best deal they can on currency transactions for their clients. "FX market participants are advised to apply the global 'high-level principles' set out in this document to the FX market as it evolves, including with respect to new FX products, processes and technologies," the document, dated March 12, said.
Two years of regulatory investigations that have led to several billion dollars in fines for banks have quashed the constant chatter of a market traditionally keen on relationship-building by phone, in bars and over electronic chats.
Fining banks late last year, authorities said dealers had used code names to identify clients without naming them and swapped information in online chatrooms with pseudonyms such as"the 3 musketeers" and "1 team, 1 dream".
The Bank of England, after the sacking of chief dealer Martin Mallett for what its governor said was a string of misjudgements, last month set tougher internal rules for staff who speak regularly with bond and currency traders.
Banks have also placed limits on how dealers talk to peers, clients and the press, but many participants say they are still unclear about what is appropriate and what not and say it has reduced opportunities to make money on trading.
The code seeks to categorise confidential information and provide more guidance on what participants can say to each other about the market, particularly around orders submitted for execution in the daily benchmark fixing sessions. "FX market participants should not pass on FX Trading Information to other FX market participants that might enable those entities to anticipate the flows of a specific client or counterparty, including around a fix," it said. "It is acceptable to share with customers a view on the general state of and trends in the market. However, any market colour given regarding market activity should be sufficiently aggregated and anonymised so as to not disclose FX Trading Information or Designated Confidential Information." Whether it be cockney rhyming slang originating in London's East End or impromptu descriptions of central and other banks based on national stereotypes, dealers have also invented codes to describe types of investor. The new rules seek to head that off too. "These policies should also prohibit counterparty and customer anonymity from being circumvented through the use of slang or pseudonyms, both externally and internally," the code said.