British multinational operator and provider of post trade risk mitigation and information services firm ICAP plc (LON:IAP) has submitted its response to the Bank of England’s Fair and Effective Markets Review (FEMR). The consultation looks at the effectiveness of the fixed income, foreign exchange and commodities (FICC) markets and seeks to address malpractice and restore confidence in them, while influencing the international debate on trading practices.
It was reported last week that the Bank of England had taken steps to undertake a full review of how electronic trading is conducted, having embarked on a separate and comprehensive of its Market Intelligence (MI) program, which includes discussions with financial industry contacts and analysis of any information gathered from them.
This measure was instigated by Britain’s central bank after a former Bank official was criticised for failing to escalate concerns about foreign exchange rigging, which banks have been fined billions of pounds for.
As an operator of electronic venues, broking facilities, post-trade and information services across a wide range of FICC market segments and geographies, ICAP is fully supportive of the objectives of FEMR. The company believes the focus of FEMR should be to encourage the effective functioning of deeply liquid financial markets, which are able to survive shocks, while supporting end-users’ hedging needs and facilitating the flow of capital and collateral throughout the financial system.
Overall ICAP highlights four key elements which are crucial to achieving the aim of fair and effective markets:
1: Confidence in FICC markets requires a mechanism to agree an approach to address the complexities inherent in them, rather than seeking to impose standardisation. In this regard there should be a “no surprises” means for regulators and the industry to address developments as they arise.
2: market participants should be given clear direction by regulators what is appropriate and not-appropriate market practice in the reformed trading environment. At present there is a risk of confusion and hesitation amongst well-intentioned participants, to their potential detriment.The aim of regulation should be to inspire confidence rather than sow doubt.
3: FICC market solutions should be appropriately specific to the complexities of the markets they serve. Regulation should not be so proscriptive that technology developments aimed at identifying and mitigating risk are stifled;
4: There should be clear guidance for companies to support their internal decision making on valuations. Automated operational and surveillance systems, and clarity of policy and process will support this.
Duncan Wales, Group General Counsel, ICAP, said: “The Fair and Effective Markets Review provides an opportunity to be forward-looking and restore confidence in the essential functioning of the financial system and economy. We believe the core objective of this review should be to assist the industry and regulators to proactively intercept malpractice and structural weaknesses before they become full-blown crises. The proposals from the Bank of England should be aimed at improving confidence in the UK as a place to do business, creating incentives for market users and investors while promoting innovation.”