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By Chris Spink
LONDON, May 26 (IFR) - Traders in the foreign exchangemarket will be banned from talking about any specifics on tradesbut allowed to disclose general "market colour" under proposalsto improve conduct in the industry.
A proposed code of practice published on Thursday from aworking group set up last year by the Basel committee of centralbankers aims to "promote a robust, fair, liquid, open, andappropriately transparent market". It will allow participants totransact "at competitive prices that reflect available marketinformation and in a manner that conforms to acceptablestandards of behaviour".
The wholesale FX market has been under scrutiny afterregulators in the US and UK found that seven banks had failed tostop traders manipulating the US$5.3trn-a-day market. Banks havebeen fined US$10bn for misdemeanours between 2008 and October2013.
The code sets out principles to clarify how traders canoperate, specifying what market information is permissible to beshared and what is banned.
"The FX industry has suffered from a lack of trust in itsfunctioning," said Guy Debelle, assistant governor of theReserve Bank of Australia and chairman of the FX working group."The market needs to rebuild that trust, so that participantsand the public have much greater confidence that the market isfunctioning appropriately."
David Puth, chief executive of CLS, who headed a marketparticipants group to represent the private sector in thecentral bank initiative, said the proposals will opencommunication between sellside and buyside participants.
"Confidential information will be protected but it will openup for market colour to be shared," he said.
The code bans passing on confidential information about aclient to other market participants, or revealing individualtrading positions. The principles also say misleadinginformation and rumours should not be used to move marketsfalsely.
"Market participants should not include specific clientnames, other mechanisms for communicating a client's identity ortrading patterns externally, nor information specific to anyindividual client," the code says.
'GREY AREA'
The 'grey area' of what FX traders can and cannot say aboutclient orders was highlighted in London court cases last yearwhen former traders said they were dismissed for doing theirjob.
Perry Stimpson, an FX trader at Citigroup until November2014, told an employment tribunal in London last year that thesharing of client information looks wrong under scrutiny fromregulators, but the practice was condoned by senior management.
Citigroup dismissed Stimpson for alleged serious breaches ofcontract, saying he shared confidential client information withtraders at other banks via electronic chatrooms. But Stimpsonwon 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 someclient activities were strictly confidential, but the actions ofcentral banks were widely shared, he said at the court hearing.
"It was implicitly understood that central banks were okayto talk about ... It was standard market practise that went onfor years," he said at the time.
ADHERENCE
A second phase in May 2017 will see the FX working group,consisting of 21 central bankers and the representatives ofmarket participants, set out how it expects people to adhere tothe principles, which are not legally binding.
"We are working with the industry to produce aprinciples-based code of conduct rather than a set ofprescriptive regulatory standards," said Debelle.
Central banks said they would only deal with banks thatagreed to the principles of the code.
The FX working group was set up last July shortly after USauthorities reached settlements with six banks - Barclays,Citigroup, JP Morgan, RBS, UBS and Bank of America.
As part of the settlement, the Federal Reserve required allthe banks "to improve their senior management oversight,internal controls, risk management, and internal audit policiesand procedures for their FX activities and for similar kinds oftrading activities".
The Global Financial Markets Association welcomed theproposals.
"This is an opportunity for global market participants todemonstrate that they can put the right controls and guidance inplace that are consistent with the principles of the code," saidJames Kemp, managing director of the GFMA's global FX division. (Reporting by Christopher Spink)
