FX Global Code of Conduct
What is FX Global Code and what are its goals?
The FX Global Code is a set of 55 global principles of good practice in the foreign exchange (Forex) market. It contains 55 principles in total and is aimed to provide a common set of guidelines created to promote the integrity and effective functioning of the wholesale Forex market. The Code promotes a robust, fair, liquid, open, and appropriately transparent Forex market and is intended to support the market by promoting high ethical and professional standards, enabling market participants to confidently and effectively transact in the marketplace. The latest version of the Code, released in July 2021, can be downloaded from the Global Foreign Exchange Committee site.
Creation of FX Global Code: who, when, and why?
The first complete version of the Code was released by the Foreign Exchange Working Group (FXWG) on May 25, 2017, though some initial content was published the year before. The FXWG was established in July 2015 by the Bank for International Settlements and consisted of central banks from 16 jurisdictions around the globe. Currently, the Code is maintained and updated by the Global Foreign Exchange Committee (GFXC) — a forum established in May 2017, which brings together central banks and private sector participants with the aim to promote a robust, liquid, open, and appropriately transparent Forex market.
The Code was created in response to a number of high-profile Forex misconduct cases that came to light in 2013 and 2014 and highlighted the fact that the numerous, existing regional FX codes of conduct had been ineffective due to a lack of awareness of, or adherence to, these codes by some market participants. The key objective was to help restore trust and confidence in the Forex market.
What are the main principles of FX Global Code?
While the Code has 55 principles in total, they are concentrated around six main principles: ethics, governance, execution, information sharing, risk management and compliance, confirmation and settlement processes.
- Ethics: market participants are expected to behave in an ethical and professional manner to promote the fairness and integrity of the Forex market.
- Governance: market participants are expected to have a sound and effective governance framework to provide for clear responsibility for and comprehensive oversight of their Forex Market activity and to promote responsible engagement in the Forex market.
- Execution: market participants are expected to exercise care when negotiating and executing transactions in order to promote a robust, fair, open, liquid, and appropriately transparent Forex market.
- Information sharing: market participants are expected to be clear and accurate in their communications and to protect confidential information to promote effective communication that supports a robust, fair, open, liquid, and appropriately transparent Forex market.
- Risk management and compliance: market participants are expected to promote and maintain a robust control and compliance environment to effectively identify, manage, and report on the risks associated with their engagement in the Forex market.
- Confirmation and settlement processes: market participants are expected to put in place robust, efficient, transparent, and risk-mitigating post-trade processes to promote the predictable, smooth, and timely settlement of transactions in the Forex market.
To whom FX Global Code applies?
The Code is applicable to all Forex market participants that engage in the Forex markets, including sell-side and buy-side entities, non-bank liquidity providers, operators of Forex e-trading platforms, and other entities providing brokerage, execution, and settlement services. For the purposes of the Code, a market participant is a person or organization (regardless of legal form) that:
- is active in Forex markets as a regular part of its business and is engaged in the activity of the purchase or sale of one currency against another, or in transactions designed to result in gains or losses based upon the change in one or more Forex rates, such as derivatives, whether deliverable or non-deliverable, either directly or indirectly through other market participants; or
- operates a facility, system, platform, or organization through which participants have the ability to execute the type of transactions described in the previous paragraph; or
- provides Forex benchmark execution services; and
- is not considered a retail market participant in the relevant jurisdictions.
According to the GFXC, the following types of persons or organizations would generally be expected to engage in Forex market activities as market participants:
- financial institutions;
- central banks, except where this would inhibit the discharge of their legal duties or policy functions;
- quasi-sovereigns and supranationals, except where this would inhibit the discharge of their organizational policy mandate;
- asset managers, sovereign wealth funds, hedge funds, pension funds, and insurance companies;
- a corporate treasury department, or corporate treasury center entering into external (non-group) transactions either on its own account or on behalf of the parent companies, subsidiaries, branches, affiliates, or joint ventures of the group it represents;
- family offices running treasury operations;
- benchmark execution providers;
- non-bank liquidity providers; firms running automated trading strategies, including high-frequency trading strategies, and/or offering algorithmic execution;
- brokers (including retail Forex brokers); investment advisers; aggregators; and analogous intermediaries/agents;
- remittance businesses, money changers, and money services businesses in their interactions in the wholesale Forex market;
- Forex e-trading platforms;
- affirmation and settlement platforms; and
- any entity classified as a Forex market participant in the relevant jurisdiction(s).
The following types of persons or organizations would not generally be expected to engage in Forex market activities as market participants:
- pricing display platforms;
- remittance businesses, money changers, and money services businesses in their interactions with retail customers;
- private banking customers trading as individuals or via personal investment vehicles; and
- the general retail public.
Does anyone enforce FX Global Code?
The Code is completely voluntary, though signing up to the Code is usually a requirement for joining local Forex committees as members and is expected by many central banks on their Forex counterparties. The Code is intended to serve as a supplement to local laws, rules, and regulations, and it is not intended to impose legal or regulatory obligations on market participants, nor is it a substitute for regulation. Signing the Statement of Commitment does not result in any legal obligations for an institution, including reporting obligations to the GFXC, outside of those dictated by the laws, rules, and regulations applicable to it and the Forex market in each jurisdiction in which it does business. Furthermore, the decision to audit for adherence to the Code rests solely with each market participant unless the regulatory framework of the jurisdictions in which the market participants operate specifically requires it.
Examples of using FX Global Code
The GFXC established case studies as a set of examples that illustrate companies' various considerations and steps to adhere to the Code, particularly taking account of the Code's proportionality concept. The case studies are not binding or prescriptive instructions and are not exhaustive of the considerations that should be taken into account or the situations that can arise. Nevertheless, the examples can help to understand the reasoning and process behind adhering to the Code. The stylized examples have been voluntarily provided by market participants, though the exact names of the participants are not revealed.
Each example follows a similar structure, with the institution answering the questions:
- Who we are?
- Why we adhered?
- How we adhered?
The explanation of the process of adherence is divided further into the following parts:
Here are links to specific case studies:
- Case study 1: Euro area non-financial corporation
- Case study 2: Mexican pension fund
- Case study 3: Swiss real money investor
- Case study 4: Australian pension fund
- Case study 5: Japanese asset management company
- Case study 6: Canada-based asset manager
If you want to share your opinion, observations, conclusions, or simply to ask questions regarding the FX Global Code, feel free to join a discussion on our forum.