First global code of conduct for FX trading may be within reach
By Patrick Graham
LONDON (Reuters) - Central banks seeking to quell misconduct in the $5 trillion (£3.28 trillion) a day currency market are hopeful that for the first time they can unify the industry's disparate codes of conduct into one central document within the next two to four years.
An annual meeting in Tokyo last month of the central bank-led committees who oversee the largely unregulated market was viewed as a step forward in efforts to create a new framework for monitoring trader behaviour.
The minutes from the meeting say there will be analysis of ways to further harmonise codes after an eight-page global preamble is published. That preamble will sit on top of regional codes, which run upwards of 100 pages.
In private, some central bankers at the centre of the process go further, saying the project may now have enough momentum to overcome long-standing differences between the big market centres in London, Tokyo and New York.
"If we can come up with some regime which is broadly the same right across the whole market, then it will be good for all sides of the market," said a senior official from one G10 central bank.
"One place to start will be to say here are all the codes, what are the similarities, what are the differences, what can we do to flesh out the commonalities. That work is going to go on over the next few months."
The work on the codes of conduct, allied to efforts in months ahead to force banks to prove their staff operate in line with them, is the closest the FX market has come to outright regulation.
A global set of rules would strengthen that process. Along with other initiatives, it would make it harder for banks and senior managers to look past breaches of those rules.
After an investigation that has cost millions in legal fees, banks have so far been fined around $4.3 billion in relation to manipulation of the FX market. A number of them are expected to settle further penalties with regulators.
A second official from another major central bank said the first stage of work would involve redrafting existing codes to unify the texts, which should lead to further work.
"London, New York, Tokyo use their own codes and you have to respect the specificities," he said. "But I think that the fact the industry is global means there is an inexorable push towards something common. We have not achieved anything yet but I am pretty positive on our ability to do so in the medium term."
Both bankers also said that the fallout of Britain's Fair and Effective Markets Review, expected to report after this week's parliamentary election, would be an important next step in regulation of conduct in markets.
The head of Hong Kong's Securities and Futures Commission cast doubt in a recent interview with Reuters on the ability of UK regulators to get support from their peers elsewhere for the reforms the review will recommend. [ID:nL6N0WR4TY]
"Given the bigger role London plays, it is not like the rest of us can ignore it. It is going to have an effect," the first official said.
(Additional reporting by Marc Jones in London; Editing by Larry King)
