Currency traders get new guidebook

Guidelines come after two-year effort to maintain standards and discourage bad

The $5.1-trillion-a-day (Dh18.7 trillion) currency market is getting a new playbook as foreign-exchange traders try to change their image from naughty to nice.

In a worldwide cleanup effort, more than 40 industry participants, steered by central bankers, have hammered out the FX Global Code — 75 pages of voluntary standards aimed at rooting out misconduct in the world’s biggest financial market.

The document, released yesterday by the major central banks, offers such advice as: Protect confidential information, don’t mislead your counterparties and be fair and transparent. The guidelines culminate a twoyear effort to bolster standards and discourage bad behaviour after a rate-rigging scandal led to about $10 billion in fines for banks and damaged trust in the industry.

“This is effectively their last chance to try and get things right,” Guy Debelle, deputy governor of the Reserve Bank of Australia, said in an interview. He led the group of central bankers working on the standards, which generated more than 10,000 comments when they were being drafted. “The odd billion-dollar fine will focus the mind.”

The currency market received a reminder of the obstacles as recently as Wednesday, with an announcement that BNP Paribas SA was fined $350 million for its involvement in the foreignexchange manipulation scandal.

A new committee of officials and market participants will work to promote the code worldwide and keep it up to date. Chris Salmon, executive director for markets at the Bank of England, will chair the group for two years. David Puth, chief executive officer of CLS Group Holdings AG, will serve as vice chair for a year. He led the group of industry participants that crafted the code.

One of the new committee’s first tasks will be to hold a public consultation on the controversial practice of “last look,” which allows dealers to back out of losing trades. The feedback period will run into September, Puth said.

The broader code covers ethics, governance, execution, information sharing, risk management and compliance, as well as confirmation and settlement procedures. It also includes a series of scenarios to illustrate best practices.

For Mayra Rodriguez Valladares, a former foreign-exchange analyst for the Federal Reserve Bank of New York, tougher rules and enforcement are the answer, rather than a set of voluntary codes. “I’m embarrassed that we have to have code in which people say they’re going to avoid conflicts of interest and abide by ethical practices,” said Rodriguez Valladares, who trains banks and financial regulators as managing principal of MRV Associates in New York.