Later this month, money managers, pension funds, brokers, banks and other participants in the foreign-exchange market will be asked to sign off on an FX Global Code of Conduct that industry sources said will result in more information to assess execution quality and trading cost.
However, more information won't necessarily translate into better execution or cost savings for pension funds and other asset owners that will continue to have the responsibility for monitoring their FX trades, they said.
“The real takeaway from the code is "buyer/seller beware,'” said James Singleton, founder and CEO of Curex Group Holdings LLC, a New York-based FX execution services and data analytics provider. “It's not focused enough on the resolution of conflict and fairness ... If I'm an asset owner or a buy-side manager, what does the code do for me other than warn me?”
Added Alex Dunegan, CEO and founder, Lumint Currency Management, Boston, “It's a good start, but with these principles — and they're good principles — you have to have some teeth and be able to enforce this. There's a lot of leeway in there. It'd be difficult for a pension fund or an endowment to look at what a manager or custodian or broker does and say that they're sure the code is being followed.”
A final version of the code is scheduled to be released May 25. According to a final draft provided to Pensions & Investments, the code will have six principles for the FX industry:
- Ethical behavior, to avoid conflicts of interest;
- A governance framework for market participants, including internal oversight and controls by signatories;
- Fair and transparent execution of trades;
- Guidelines for what data can be disclosed and what must be held confidential, such as client information;
- Risk management and compliance, with regular reporting and maintenance of robust compliance mechanisms; and
- Efficient and transparent confirmation and settlement processes.