Don't lie, don't cheat, don't start rumors, says new FX code

LONDON (Reuters) - The first global code of conduct for currency trading has banned dealers from lying and starting false rumors as part of new guidelines aimed at rebuilding trust in a foreign exchange market plagued by scandals and accusations of manipulation.

Currency signs of Japanese Yen, Euro and the U.S. dollar are seen on a board outside a currency exchange office at Narita International airport, near Tokyo, Japan, March 25, 2016. REUTERS/Yuya Shino

The document, released on Thursday after evolving from a handful of regional codes used previously, focuses largely on the detail of how banks deal with clients’ orders and what market participants can and cannot say to one another.

On those issues alone, it includes dozens of individual directives organized under 11 broader “principles” as well as an extended annex of specific examples of appropriate and inappropriate formulas for discussing market moves.

“The foreign exchange industry has suffered from a lack of trust,” Reserve Bank of Australia Assistant Governor Guy Debelle, who chaired the panel of 21 central banks working on the document since last July, told reporters on a conference call. “The market needs to rebuild that trust.”

The code is part of the industry’s response to charges of market manipulation and misuse of confidential customer order information which saw seven of the world’s top banks fined around $10 billion at the end of a huge global inquiry last year.

The second phase of the code will be completed in 12 months, Debelle said, and will cover further aspects of execution, trading and platforms, prime brokerage and governance, as well as risk management and compliance.

Thursday’s FX guidelines, however, raised questions about enforcement and how the code will be policed.

“The code is not regulation. We are establishing principles,” Debelle said in a question-and-answer session. “I think as adherence mechanisms are developed over the next year or so, we’ll provide greater guidance.”

The issue of high-speed electronic trading, which has changed the face of the industry in the past decade, also is left for later.

Sharing of confidential client order information via FX traders’ electronic chat rooms with names such as “The Cartel” and “The Bandits’ Club”, particularly around the benchmark currency rates known as the 4 o’clock London fix, was central to the scandal.

But traders said the resulting fear of talking freely about the market has increased the risk of trading and discouraged some of the speculation which made the market able to swallow large orders easily without volatile moves in prices.

The code specifies, for example, that information contained in banks’ research can only be shared after it is published, and client order information can only be shared “sensitively” and if there is a “valid reason” for doing so.


Perhaps the most nebulous area of communication surrounds “market color”, which traders have said in the past led to banks and clients revealing details of particular orders which were moving currencies at a given time.

According to the FX Code, the seeking and sharing of market color is appropriate as long as it is “properly aggregated or anonymized and restricted to seeking information on market liquidity and sharing market views and opinions without disclosing specific trading positions or intention to trade.”

Discussion of broad types of clients is appropriate, but use of language that would allow the listener to deduce the identity of the client concerned is not.

Among other things, participants are also expressly banned from lying to others or starting rumors about reasons for market moves that they know to be untrue, in aid of moving the broader market.

David Puth, head of global settlement bank CLS and chair of the panel of 35 banks and other participants who contributed to the work, told Reuters he hoped the code would allow the $5 trillion a day market to grow again after a static three years hampered by doubts over what is allowed and what isn’t.

Additional reporting by Jamie McGeever in London and Gertrude Chavez-Dreyfuss in New York; Editing by Mark Trevelyan