A new code of conduct has been issued by the Bank for International Settlements (BIS) for foreign exchange trading. This international financial institution is frequently considered as the central banks’ bank. This new code comes into play as numerous scandals have recently occurred that relate to manipulating foreign exchange rates, which have shaken the market’s confidence lately.
Last week the global code was released. It is comprised of common standards that have been laid down for monitoring the conduct and behavior of foreign exchange traders over various criteria like trade verification, governance, risk management and confidential information sharing. Recent scandals have caused trader to be hesitant to share information in a transparent manner, which makes it hard for investors to judge their trades timing. It also makes it more difficult for central banks to assess what the impact their policies will have on foreign exchange markets.
It is acknowledged by the code that it is essential to have some kind of information sharing in order to ensure a liquid and open market. BIS, in light of this, has requested that in their communications that market participants be clearer while still maintaining confidentiality. Participants are also required by the code to be open when responding for policy purposes with the central banks.
Guy Debelle, who is assistant governor of Australia’s Reserve Bank and chairman of the BIS foreign exchange working groups, has stated that effort was needed in order to restore trust among the foreign exchange industry’s market participants as well as between the public and market. The code of conduct details how confidential information needed to be treated and there are guidelines for discussions regarding rumors that might affect trading and pricing. Traders are also required to avoid generating rumors that may influence the markets.
Chief executive David Puth of CLS Bank International, which is the main currencies settlement house in the world, issued a statement stating that they were hoping to allow market colour to be protected. He added that market participants should communicate in an appropriate manner without confidential information being compromised. Market participants believe that it is essential to have market colour in order for the market to run smoothly.
The code of conduct was developed by the BIS after getting input from the world’s central banks and from more than 35 representatives from various market participants like asset managers, settlement houses and banks. Adopting the code is voluntary, however Debelle has said he is expecting the code to be put into practice across world markets. Support for the new code has been expressed by many market participants including trade associations and central banks.
The code’s second phase is scheduled to be released within a year. Institutional market concerns will be targeted like governance and high-speed computer trading.