Norway fund says FX market practices need to improve

OSLO: The world’s biggest sovereign wealth fund is advocating for change in the way currency markets function to ensure both sides of trades have equal access to the information they need.

“FX markets are now the most liquid in the world, which is a significant achievement,” the Norwegian wealth fund said in a paper published on Friday.

“However, the solutions have also tended to exacerbate the informational advantages enjoyed by dealers in bilateral, over-thecounter markets.”

Currency markets are less shaped by regulation than areas such as fixed income. Instead, participants are guided by the FX Global Code of Conduct.

Norway’s US$1 trillion wealth fund says the practices that currently steer currency trading need greater transparency and verifiability, which it sees as “key to mitigating the impact” of a lack of symmetry in information.

The fund identified three practices it says “particularly stand to gain from greater transparency and verifiability.”

They are LastLook, the implementation of electronic algorithms, linkages between Request For Quote feeds and inter-dealer market prices

The fund said it wasn’t calling for any of the three categories to be abandoned, just improved.

“We believe that governance standards are a natural extension for the FX Global Code,” it said. “These would serve to further strengthen the well-functioning of this important market.”