The new version updates its principles of good practice in the foreign exchange market in two key areas. Alongside the revised code, GFXC stated that it will also publish enhanced Disclosure Cover Sheets (DCS) for liquidity providers and platforms.

The code was updated following an extensive consultation process with local FX committees (LFXCs) globally as well as a wide range of market participants through a public request for feedback in October 2024.  

At the time, however, the Foreign Exchange Professionals Association (FXPA) labelled the updates “well-intentioned but flawed”, namely due to the overly complicated language used in the proposals and the lack of practical detail. 

Read more: FX association calls out proposed FX Global Code revisions for ‘complexity and lack of clarity’ 

Following the consultation process, updates have been made to five of the code’s 55 principles to strengthen guidance around FX settlement risk and increase transparency around certain FX transactions and the use of client data on electronic trading platforms. 

Elsewhere, the DCS for liquidity providers and platforms were also extended, aiming to improve transparency and comparability across providers on the use of FX data.  

“We welcome the code’s continued emphasis on mitigating FX settlement risk via PvP [payment vs payment] mechanisms and automated netting solutions, using the ‘risk waterfall’ concept as a best practice approach,” said Marc Bayle de Jessé, chief executive at CLS.  

“The principles outlined in the code are critical for reducing systemic risk while enhancing resilience and efficiency in the global FX market.” 

As part of the updated FX Global Code, it becomes essential for trading platforms to disclose how they use data from client transactions, especially with respect to order handling, fees, and post-trade reviews. 

Elsewhere, there has been an establishment of a “hierarchy of settlement methods” and a risk waterfall approach, to tackle settlement risk.  

“The updates to the global FX code are a significant step forward in enhancing transparency and reducing risk in FX markets. It is now incumbent upon firms to use the next 12 months to implement the available solutions to facilitate PvP settlement,” said Alex Knight, head of EMEA at Baton Systems.   

“Even where PvP settlements aren’t yet available, most firms still have an opportunity to deploy technology to further de-risk their business through the use of real-time information to track and orchestrate settlements in a controlled manner, and to reduce the volume of business that is settled gross.” 

Firms have been given a “sufficient” 12-month period by the GFXC to comply with these changes, which have been created with the aim of improving transparency, efficiency, and risk mitigation in FX markets. 

Following the code review, GFXC chair, Gerardo García, commented “there has been strong GFXC support for the final proposals of the FX settlement risk and FX data working groups.  

“The code amendments clearly address the concerns that market participants and LFXCs expressed during the review process and are consistent with the objective of having a more robust and transparent FX market.”  

Basu Choudhury, head of trade lifecycle strategy at OSTTRA, highlighted that the updated FX Global Code “rightly prioritises” the mitigation of settlement risk and liquidity –which he noted as pressing challenges within the FX market.  

“We see this as a pivotal moment to ensure market participants not only manage settlement risk but also optimise their FX liquidity comprehensively,” he said. 

“Only by integrating tools to facilitate full visibility of exposures from point of execution with effective netting protocols and intraday FX PvP can firms be empowered to navigate future FX settlement challenges with greater confidence and precision.” 

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“The first [focus] is mitigating settlement risk. What we want to do in the global community is promote the adoption of payment versus payment and settlement methods or something similar – for example automated netting – or anything else which can significantly mitigate risks,” said Garcia.

In addition, another key aspect and priority for the Committee’s review was the shift to T+1, which Garcia explained may require a review of the code with regards to post-trade settlement processes.

Specifically, this could mean modifying the methodology by which the GFXC assesses and evaluates settlement risk in order for the Committee to get a better sense of what the actual notional amount truly subject to this settlement risk is.

The second issue relates to enhancing the transparency of FX transactions in order to allow every counterparty involved to understand clearly how entities are interacting.

“There has been some discussion with regards to transparency when the trade is internalised, so we also will be discussing how we can best promote transparency when you trade or when internalisation is being used,” added Garcia.

Related to this, is the third focus – FX data and the promotion of it’s good use. According to the panel, it is through making more information available that the transparency of the market will be enhanced.

The role of prime brokers and global custodians is also set to be addressed in this vein with an end goal of allowing market participants better access to data and ultimately, better execution.

Garcia further asserted that the industry itself is driving the review of the code, with more than 300 institutions having been surveyed to assess opinions around future inclusions.

Anna Nordstrom, head of the domestic and international markets functions in the markets group at Deferral Reserve Bank of New York, shared that the current reach of the FX global code extended to 1300 entities – including the top 15 asset managers globally.

Speaking to the increasing buy-side adoption of the code, Daniel Mitchell, vice president, senior portfolio manager, at RBC global asset management, highlighted that the firm had joined in order to “protect the interest of their clients,” with the code fitting into RBC’s shift towards a more global orientation.

He further added that adherence “projects the right image across the street […] it’s a firm-wide commitment and not solely the execution desk that needs to be involved.”

Nordstrom also highlighted the emergence of platforms offering liquidity pools that adhere to the code as a key indicator of how far things have come in the last few years.

Harri Vikstedt, senior policy director, financial markets department at Bank of Canada, explained that while previous iterations of the GFXC’s global FX code had previously been very granular and admittedly sell-side focused, it is now principles-based.

Specifically, the GFXC principles are a supplement to local law, rules and regulations, organised around six leading principles: Ethics, information sharing, governance, confirmation and settlement, execution, risk management and compliance.

“For this to really work it requires a cooperation from everybody – sell-side, buy-side, custodians, platforms, data providers and central banks as well. We’re all in this together, and it should be a shared responsibility,” said Mitchell.

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