Currency Market Crafts Code After Banks Pay $9 Billion in Fines

  • Industry group forms guidelines on ethics, information sharing
  • Principles to 'raise the stakes' for foreign-exchange market

In about six weeks, currency traders will get a handbook designed to root out bad behavior and price manipulation that led to $9 billion in bank fines and penalties.

A group of foreign exchange market participants, under the auspices of the world’s biggest central banks, is drafting a code of conduct that will guide behavior across the $5.3 trillion-a-day industry. The first set of principles is expected to be finalized by the end of May, according to David Puth, an industry executive leading the process.

“I would expect that poor conduct in this market will get rooted out very quickly” after the code is adopted, said Puth, chief executive officer of CLS Group Holdings AG, which settles trillions of dollars of currency transactions a day. “This is not to suggest that nothing will ever happen again -- however, I believe we’ve really raised the stakes.”

The creation of guidelines follows a price-manipulation scandal that roiled the currency market. The fines and penalties were paid by five banks -- Citigroup Inc., JPMorgan Chase & Co., Barclays Plc, Royal Bank of Scotland Group Plc and UBS Group AG -- for misconduct, the U.S. Department of Justice said in May 2015. The principles aim to stamp out poor conduct and clarify best practices across a 24-hour, global market that doesn’t sit neatly under the authority of any single regulator.

The code will give guidance on the practices of pre-hedging and price markups. It will also cover information sharing, which has stalled because currency traders and sales people are withholding market commentary and trading ideas from clients amid increased regulatory scrutiny. Other areas of the code include ethics, governance, execution, risk management and compliance, confirmation and settlement.

The principles are being devised by more than 30 senior market participants from banks, asset managers, trading venues and corporations across about 20 countries. They are working with the Basel, Switzerland-based Bank for International Settlements, which acts a central bank for the world’s central banks.

After three meetings in London, New York and Tokyo over the course of five months, hammering out multiple drafts and assessing more than a thousand comments, the code is under its final review by the industry and government bodies.

“This team of people recognizes fully that they have a very important responsibility to the global marketplace to do this right, to do this well, to do this once and not have to come back and try to do it again,” Puth said by phone from New York. 

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