The sharing of information between bank traders must come to an end, under a new global code of conduct that bans traditional slang usages and gives dealers more guidelines for what they can and cannot say about the world’s biggest financial market.
The 8-page document, the full content of which was reported by the Daily Mail, is part of Britain’s attempts to stave off market abuse after two years of scandal over market manipulation. It was agreed this month by the foreign exchange market committees run by all of the developed world’s major central banks.
This, according to a report by Reuters today, will serve as a global guide on top of the existing codes approved by each committee and also instructs asset managers to work harder at ensuring they are getting the best deal they can on currency transactions for their clients.
The document, dated March 12, stated “FX market participants are advised to apply the global ‘high-level principles’ set out in this document to the FX market as it evolves, including with respect to new FX products, processes and technologies.”
Instant messaging services were in widespread use during the period in which many FX trading desks within banks were found to have manipulated benchmarks, a practice which has cost six major banks a total of $4,3 billion in fines from Swiss, British and US regulators, as well as criminal prosecutions against specific traders.
Bravado and the use of foul language was a major characteristic of the dialog between traders which manipulated FX rates, and indeed subsequently the restriction of electronic chat facilities on an inter-company basis has come into question.
The Bank of England, after the sacking of chief dealer Martin Mallett for what its governor said was a string of misjudgements, last month set tougher internal rules for staff who speak regularly with bond and currency traders.
Banks have also placed limits on how dealers talk to peers, clients and the press, but many participants say they are still unclear about what is appropriate and what not and say it has decreased opportunities to make money on trading.
The code seeks to categorise confidential information and provide more guidance on what participants can say to each other about the market, particularly around orders submitted for execution in the daily benchmark fixing sessions.
“FX market participants should not pass on FX Trading Information to other FX market participants that might enable those entities to anticipate the flows of a specific client or counterparty, including around a fix,” it said.
“It is acceptable to share with customers a view on the general state of and trends in the market. However, any market colour given regarding market activity should be sufficiently aggregated and anonymised so as to not disclose FX Trading Information or Designated Confidential Information.”
Whether it be cockney rhyming slang originating in London’s East End or impromptu descriptions of central and other banks based on national stereotypes, dealers have also invented codes to describe types of investor. The new rules seek to put and end to this entirely.
“These policies should also prohibit counterparty and customer anonymity from being circumvented through the use of slang or pseudonyms, both externally and internally,” the code states.