FX code proposes limits to sharing trade information

LONDON (IFR) - Traders in the foreign exchange market will be banned from talking about any specifics on trades but allowed to disclose general “market color” under proposals to improve conduct in the industry.

People are silhouetted against a backdrop projected with the picture of various currencies of money in this illustration taken April 4, 2016. REUTERS/Kacper Pempel/Illustration

A proposed code of practice published on Thursday from a working group set up last year by the Basel committee of central bankers aims to “promote a robust, fair, liquid, open, and appropriately transparent market”. It will allow participants to transact “at competitive prices that reflect available market information and in a manner that conforms to acceptable standards of behavior”.

The wholesale FX market has been under scrutiny after regulators in the US and UK found that seven banks had failed to stop traders manipulating the US$5.3trn-a-day market. Banks have been fined US$10bn for misdemeanors between 2008 and October 2013.

The code sets out principles to clarify how traders can operate, specifying what market information is permissible to be shared and what is banned.

“The FX industry has suffered from a lack of trust in its functioning,” said Guy Debelle, assistant governor of the Reserve Bank of Australia and chairman of the FX working group. “The market needs to rebuild that trust, so that participants and the public have much greater confidence that the market is functioning appropriately.”

David Puth, chief executive of CLS, who headed a market participants group to represent the private sector in the central bank initiative, said the proposals will open communication between sellside and buyside participants.

“Confidential information will be protected but it will open up for market color to be shared,” he said.

The code bans passing on confidential information about a client to other market participants, or revealing individual trading positions. The principles also say misleading information and rumors should not be used to move markets falsely.

“Market participants should not include specific client names, other mechanisms for communicating a client’s identity or trading patterns externally, nor information specific to any individual client,” the code says.


The ‘grey area’ of what FX traders can and cannot say about client orders was highlighted in London court cases last year when former traders said they were dismissed for doing their job.

Perry Stimpson, an FX trader at Citigroup until November 2014, told an employment tribunal in London last year that the sharing of client information looks wrong under scrutiny from regulators, but the practice was condoned by senior management.

Citigroup dismissed Stimpson for alleged serious breaches of contract, saying he shared confidential client information with traders at other banks via electronic chatrooms. But Stimpson won his unfair dismissal case against the bank.

He said whether client information could be shared was a “bit of a grey area”. Citigroup staff knew details of some client activities were strictly confidential, but the actions of central banks were widely shared, he said at the court hearing.

“It was implicitly understood that central banks were okay to talk about ... It was standard market practise that went on for years,” he said at the time.


A second phase in May 2017 will see the FX working group, consisting of 21 central bankers and the representatives of market participants, set out how it expects people to adhere to the principles, which are not legally binding.

“We are working with the industry to produce a principles-based code of conduct rather than a set of prescriptive regulatory standards,” said Debelle.

Central banks said they would only deal with banks that agreed to the principles of the code.

The FX working group was set up last July shortly after US authorities reached settlements with six banks – Barclays, Citigroup, JP Morgan, RBS, UBS and Bank of America.

As part of the settlement, the Federal Reserve required all the banks “to improve their senior management oversight, internal controls, risk management, and internal audit policies and procedures for their FX activities and for similar kinds of trading activities”.

The Global Financial Markets Association welcomed the proposals.

“This is an opportunity for global market participants to demonstrate that they can put the right controls and guidance in place that are consistent with the principles of the code,” said James Kemp, managing director of the GFMA’s global FX division.