FX GLOBAL

CODE
A set of global principles of good practice
in the foreign exchange market
 CONTENTS

Contents
Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

I. What Is the FX Global Code?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. To Whom Does the FX Global Code Apply? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Ethics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Information Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

I. Handling Confidential Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

II. Communications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Risk Management and Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

I. Frameworks for Risk Management, Compliance, and Review . . . . . . . . . . . . . . . 28

II. Key Risk Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Confirmation and Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

I. Overarching Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

II. Confirmation Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

CONTENTS
III. Netting and Settlement Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
FOREWORD
IV. Account Reconciliation Processes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ETHICS

Annex 1: Illustrative Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 GOVERNANCE

EXECUTION
Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
INFORMATION
SHARING
Information Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
RISK AND
COMPLIANCE
Risk Management and Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
CONFIRMATION
Confirmation and Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 AND SETTLEMENT

ANNEX 1
Annex 2: Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ANNEX 2

Annex 3: Statement of Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 ANNEX 3

Cover: Courtesy of NASA Earth Observatory/NOAA NGDC

 FOREWARD

Foreword
I. What Is the FX Global Code?
This set of global principles of good practice in the foreign exchange market (Global
Code) has been developed to provide a common set of guidelines to promote the integ-
rity and effective functioning of the wholesale foreign exchange market (FX Market).1
It is intended to promote a robust, fair, liquid, open, and appropriately transparent
market in which a diverse set of Market Participants, supported by resilient infrastruc-
ture, are able to confidently and effectively transact at competitive prices that reflect
available market information and in a manner that conforms to acceptable standards
of behaviour.

The Global Code does not impose legal or regulatory obligations on Market Participants
nor does it substitute for regulation, but rather it is intended to serve as a supplement to any
and all local laws, rules, and regulation by identifying global good practices and processes.

The Global Code was developed by a partnership between central banks

and Market Participants from 16 jurisdictions around the globe.
 n the central bank side, the Foreign Exchange Working Group (FXWG) was estab-
O
lished in July 2015 to facilitate the creation of the Global Code and to promote its
adoption. It operates under the auspices of the Markets Committee, which is com-
posed of senior officials responsible for market operations in 21 central banks repre-
senting the largest currency areas. It was chaired by Guy Debelle (Deputy Governor,
Reserve Bank of Australia).
 n the private sector side, the FXWG formed a Market Participants Group (MPG),
O
CONTENTS
chaired by David Puth, Chief Executive Officer of CLS Bank International, to help co-
FOREWORD
ordinate across the regional foreign exchange committees (FXCs) and representatives
of the FX Market in other regions, in order to engage a broad and diverse set of Market ETHICS
Participants in the process of developing and promoting the Global Code. GOVERNANCE

EXECUTION
The effort to create the Global Code has been a collaborative one. Successive drafts
INFORMATION
were prepared by the FXWG and the MPG, and those drafts were provided for com- SHARING
ment to the FXWG and MPG members themselves, regional FXCs sponsored by FXWG
RISK AND
members, and certain industry groups with the aim of obtaining input from a broad COMPLIANCE
spectrum of participants in the FX Market.
CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2
1
The foreign exchange committees (FXCs) and central banks may continue to issue local standards where
necessary to meet the specific circumstances of their markets. ANNEX 3

1
 FOREWARD

The Global Code is organised around six leading principles:


Ethics: Market Participants are expected to behave in an ethical and professional man-
ner to promote the fairness and integrity of the FX Market.

Governance: Market Participants are expected to have a sound and effective gover-
nance framework to provide for clear responsibility for and comprehensive oversight
of their FX Market activity and to promote responsible engagement in the FX Market.
 xecution: Market Participants are expected to exercise care when negotiating and ex-
E
ecuting transactions in order to promote a robust, fair, open, liquid, and appropriately
transparent FX Market.

Information Sharing: Market Participants are expected to be clear and accurate in
their communications and to protect Confidential Information to promote effective
communication that supports a robust, fair, open, liquid, and appropriately transparent
FX Market.

Risk Management and Compliance: Market Participants are expected to promote and
maintain a robust control and compliance environment to effectively identify, manage,
and report on the risks associated with their engagement in the FX Market.
 onfirmation and Settlement Processes: Market Participants are expected to put in
C
place robust, efficient, transparent, and risk-mitigating post-trade processes to pro-
mote the predictable, smooth, and timely settlement of transactions in the FX Market.

The Global Code will be periodically reviewed and is expected to evolve over time in a
similarly collaborative manner.

The Global Code and Applicable Law

Market Participants must be aware of, and comply with, the laws, rules, and regulations applicable
to them and the FX Market in each jurisdiction in which they do business (Applicable Law).
CONTENTS
Market Participants remain responsible for having internal policies and procedures in place
FOREWORD
that are designed to comply with such Applicable Law.
ETHICS
The content of this guidance in no way supplants or modifies Applicable Law. Similarly,
this guidance does not represent the judgement nor is it intended to bind the discretion of GOVERNANCE

any regulator, supervisor, or other official sector entities with responsibility over the relevant EXECUTION

markets or Market Participants, and it does not provide a legal defence to a violation of INFORMATION
SHARING
Applicable Law.
This Global Code should serve as an essential reference for Market Participants when RISK AND
COMPLIANCE
conducting business in the FX Market and when developing and reviewing internal procedures.
CONFIRMATION
It is not intended to be a comprehensive guide to doing business in the FX Market. AND SETTLEMENT
Certain terms used in this Global Code may have specific definitions or meanings under
ANNEX 1
Applicable Law, which may imply certain duties or obligations in a jurisdiction. Since this document
ANNEX 2

ANNEX 3

2
 FOREWARD

The Global Code and Applicable Law (continued)

is meant to serve as a code of good practice for Market Participants operating in different
jurisdictions, it is not intended that the local meaning of terms in any one jurisdiction apply to the
interpretation of this Global Code. For the avoidance of doubt, terms used in this Global Code should
be read according to their commonly accepted meaning as terms of market practice in the FX
Market, and no specific legal or regulatory meaning should be imputed or ascribed to them.
Annex 2 contains a glossary of the capitalised terms featured throughout the Global Code.

II. To Whom Does the FX Global Code Apply?

The FX Market features a diverse set of participants who engage in the market in differ-
ent ways and across various FX products. The Global Code is written with this diversity
in mind and is expected to apply to all FX Market Participants that engage in the FX
Markets, including sell-side and buy-side entities, non-bank liquidity providers, oper-
ators of E-Trading Platforms, and other entities providing brokerage, execution, and
settlement services. While there can be no universal one size fits all approach, given
the diversity of the market, the Global Code is intended to establish a common set of
guidelines for responsible participation in the market.

For the purposes of this document, a Market Participant2 is a person or

organisation (regardless of legal form) that:
(i) is active in FX Markets as a regular part of its business and is engaged in the
activity of the purchase or sale of one currency against another, or in transactions
designed to result in gains or losses based upon the change in one or more FX CONTENTS
rates, such as derivatives, whether deliverable or non-deliverable, either directly
FOREWORD
or indirectly through other market participants; or
ETHICS
(ii) operates a facility, system, platform, or organisation through which participants
GOVERNANCE
have the ability to execute the type of transactions described in (i); or
EXECUTION
(iii) provides FX benchmark execution services; and
INFORMATION
(iv) is not considered a retail market participant in the relevant jurisdiction(s). SHARING

RISK AND
The term includes any personnel who conduct the foregoing on behalf of a Market Participant. COMPLIANCE

CONFIRMATION
AND SETTLEMENT
2
The term Market Participant is generally used to refer to both firms and personnel, per the definition.
ANNEX 1
However, in some cases it will be clear that a principle is by its nature more relevant to only one or the other.
For example, certain principles deal primarily with business or firm-level policies and procedures rather than ANNEX 2
individual behaviours. The terms firm and personnel are occasionally used where principles focus on good
practice by firms with regard to personnel in their capacity as such, and vice versa. ANNEX 3

3
 FOREWARD

As a guide, the following types of persons or organisations would generally

be expected to engage in FX Market activities as Market Participants, as
described in (i) (iv) above:
financial institutions;

central banks, except where this would inhibit the discharge of their legal duties or
policy functions3;

quasi-sovereigns and supranationals, except where this would inhibit the discharge of
their organisational policy mandate;

asset managers, sovereign wealth funds, hedge funds, pension funds, and insurance
companies;
a corporate treasury department, or Corporate Treasury Centre entering into external
(non-group) transactions either on its own account or on behalf of the parent com-
panies, subsidiaries, branches, affiliates, or joint ventures of the group it represents;
family offices running treasury operations;
benchmark execution providers;

non-bank liquidity providers; firms running automated trading strategies, including
high-frequency trading strategies, and/or offering algorithmic execution;

brokers (including retail FX brokers); investment advisers; aggregators; and analo-
gous intermediaries/agents;

remittance businesses, money changers, and money services businesses in their inter-
actions in the wholesale FX Market;
E-Trading Platforms;
affirmation and settlement platforms; and
any entity classified as an FX Market Participant in the relevant jurisdiction(s).

As a guide, the following types of persons would not generally be expected

to engage in FX Market activities as Market Participants, as described in CONTENTS
(i) (iv) above:
FOREWORD
pricing display platforms; ETHICS

remittance businesses, money changers, and money services businesses in their inter- GOVERNANCE
actions with retail customers;
EXECUTION
private banking customers trading as individuals or via personal investment vehicles; and
INFORMATION
the general retail public. SHARING

RISK AND
The universe of Market Participants is considerably diverse in the type and level of COMPLIANCE
engagement in the FX Market. The Global Code is expected to apply to all of these CONFIRMATION
AND SETTLEMENT

ANNEX 1
3
Note that transactions by central banks for the discharge of their legal duties or policy functions may be ANNEX 2
carried out by central banks themselves or through other Market Participants, including financial institutions
and supranationals that may act on an agency basis, or otherwise, on behalf of the central bank. ANNEX 3

4
 FOREWARD

Market Participants, but the details of how it may apply can depend on their under-
lying activities. In practice, the steps that different Market Participants take to align
their activities with the principles of the Global Code will necessarily reflect the
size and complexity of the Market Participants FX Market activities, and the nature
of the Market Participants engagement in the FX Market, and will take account of
Applicable Law. Ultimately, the decision of what steps should be undertaken, and
in what manner, resides with each Market Participant, reflecting an appropriate in-
ternal assessment.

Annex 3 presents a Statement of Commitment form. The Statement, like the Code,
is voluntary and Market Participants may make use of it in different ways to support
the objectives of the Code, enhancing transparency, efficiency, and functioning in
the FX Market. The Statement is accompanied by an explanatory note providing
additional background.

CONTENTS

FOREWORD

ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

5
 ETHICS
PRINCIPLES 1-3

Ethics
LEADING PRINCIPLE:
Market Participants are expected to behave in an
ethical and professional manner to promote the
fairness and integrity of the FX Market.
The ethical and professional behaviour of Market Participants
underpins the fairness and integrity of the FX Market. The exercise of
judgement is central to acting ethically and professionally, and Mar-
ket Participants (meaning both firms and their personnel) should
be guided in doing so by the high-level principles below, both when
applying the specific guidance in the Global Code and at all times
when participating in the FX Market.

PRINCIPLE 1

Market Participants should strive for the highest ethical

standards.

Market Participants should: CONTENTS

act honestly in dealings with Clients and other Market Participants; FOREWORD

act fairly, dealing with Clients and other Market Participants in a consistent and ap- ETHICS
propriately transparent manner; and GOVERNANCE
act with integrity, particularly in avoiding and confronting questionable practices and EXECUTION
behaviours. INFORMATION
SHARING

Maintaining high standards of behaviour is the responsibility of: RISK AND

COMPLIANCE

firms, which should promote ethical values and behaviour within the organisation,
CONFIRMATION
support efforts to promote high ethical standards in the wider FX Market, and encour- AND SETTLEMENT
age involvement by personnel in such efforts;
ANNEX 1

senior and front-line management, which should be pro-active in embedding and sup-
ANNEX 2
porting the practice of ethical values within the firms culture and be prepared to give
appropriate advice to personnel; and ANNEX 3

6
 ETHICS
PRINCIPLES 1-3


personnel, who should apply judgement when facing ethical questions, expect to be
held responsible for unethical behaviour, and seek advice where appropriate. Person-
nel should report and/or escalate issues of concern to appropriate parties internally or
externally, having regard to the circumstances.

PRINCIPLE 2

Market Participants should strive for the highest

professional standards.

All Market Participants share a common interest in maintaining the highest degree of
professionalism and the highest standards of business conduct in the FX Market.

High standards of conduct are underpinned by:

having sufficient knowledge of, and complying with, Applicable Law;
having sufficient relevant experience, technical knowledge, and qualifications;
acting with competence and skill;

applying professional judgement in following the firms guidelines and operating
procedures, including, but not limited to, methods of execution, record keeping, and
ethical behaviour; and

engaging in efforts to strive for the highest standards of professionalism in the wider
FX Market.

Firms should have personnel who are appropriately trained and who have the necessary
experience to discharge their employment duties in a professional manner.

PRINCIPLE 3 CONTENTS

FOREWORD
Market Participants should identify and address
ETHICS
conflicts of interest.
GOVERNANCE

EXECUTION
Market Participants should identify actual and potential conflicts of interest that may
compromise or be perceived to compromise the ethical or professional judgement of INFORMATION
SHARING
Market Participants. Market Participants should eliminate these conflicts or, if this is not
reasonably possible, effectively manage them so as to promote fair treatment of their RISK AND
COMPLIANCE
Clients and other Market Participants, up to and including abstaining from undertaking
CONFIRMATION
the relevant activity or action due to the conflict of interests. AND SETTLEMENT

ANNEX 1
Personnel should be aware of the potential for conflicts of interest to arise and comply
with their firms policies in these areas. ANNEX 2

ANNEX 3

7
 ETHICS
PRINCIPLES 1-3

Contexts in which conflicts may arise include, but are not limited to:

situations where personal or firm interests may conflict with those of a Client or other
Market Participant, or where such a conflict arises for the Market Participant because
the interests of one Client may conflict with those of another;
personal relationships;
gifts and corporate entertainment; and
Personal Dealing.

Market Participants should put in place appropriate and effective arrangements to elim-
inate or manage conflicts of interest. This could include:
segregation of duties and/or reporting lines;

establishing information barriers (for example, physical segregation of certain depart-
ments and/or electronic segregation);

altering the duties of personnel when such duties are likely to give rise to conflicts of
interest;

providing training to relevant personnel to enable them to identify and handle conflicts
of interest;

establishing declaration policies and/or records for identified conflicts of interest and
personal relationships, as well as for gifts and corporate entertainment received; and
having policies and controls on Personal Dealing.

Where it is concluded that a specific conflict of interest cannot reasonably be avoided or

effectively managed (including by ceasing to undertake the relevant service or activity),
Market Participants should disclose sufficient details of the conflict to enable the affected
parties to decide beforehand whether or not they wish to proceed with the transaction
or service.

CONTENTS

FOREWORD

ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

8
 GOVERNANCE
PRINCIPLES 4-7

Governance
LEADING PRINCIPLE:
Market Participants are expected to have a sound
and effective governance framework to provide
for clear responsibility for and comprehensive
oversight of their FX Market activity and to
promote responsible engagement in the FX Market.
Appropriate governance structures should be in place to promote
and support the principles set out in this Code. Different firms
governance structures may vary in complexity and scope. The pre-
cise structure adopted should be commensurate with the size and
complexity of the Market Participants FX Market activities, and the
nature of the Market Participants engagement in the FX Market,
taking into account Applicable Law.

PRINCIPLE 4
CONTENTS
The body, or individual(s), that is ultimately responsible
FOREWORD
for the Market Participants FX business strategy and
ETHICS
financial soundness should put in place adequate and
GOVERNANCE
effective structures and mechanisms to provide for
appropriate oversight, supervision, and controls with EXECUTION

INFORMATION
regard to the Market Participants FX Market activity. SHARING

RISK AND
The body, or individual(s), that is ultimately responsible for the Market Participants FX COMPLIANCE
business strategy and financial soundness should put in place: CONFIRMATION
AND SETTLEMENT
 operational structure with clearly defined and transparent lines of responsibility for
an
the Market Participants FX Market activity; ANNEX 1


effective oversight of the Market Participants FX Market activity based on appropri- ANNEX 2
ate management information; ANNEX 3

9
 GOVERNANCE
PRINCIPLES 4-7

 environment that encourages effective challenge to senior management charged

an
with day-to-day responsibility for the Market Participants FX Market activity; and

independent control functions and mechanisms to assess whether the Market Par-
ticipants FX Market activities are conducted in a manner that reflects the Market
Participants operational risk and conduct requirements. Such functions should have
sufficient stature, resources, and access to the body or individual(s) that is ultimately
responsible for the Market Participants FX business strategy and financial soundness.

In implementing the above, consideration should be given to the types of activities that
the Market Participant engages in, including if the Market Participant engages in the
provision or usage of Electronic Trading Activities or Prime Broker services.

PRINCIPLE 5

Market Participants should embed a strong culture of

ethical and professional conduct with regard to their
FX Market activities.

Market Participants should, among other things:


expect senior management to be highly visible to relevant personnel of the Market
Participant in articulating and modelling the desired practices, values, and conduct;

take appropriate steps to promote and reinforce all relevant personnels awareness
and understanding of (i) the values and the ethical and conduct standards that should
be adhered to in their engagement in the FX Market; and (ii) Applicable Law that is
relevant to them (see Principle 25); and

make all relevant personnel (including senior management) aware that disciplinary
or other actions may result from unacceptable behaviours and transgressions of the
Market Participants policies.
CONTENTS

FOREWORD

ETHICS
PRINCIPLE 6
GOVERNANCE
Market Participants should have remuneration and EXECUTION
promotion structures that promote market practices INFORMATION
and behaviours that are consistent with the Market SHARING

Participants ethical and professional conduct RISK AND

COMPLIANCE
expectations. CONFIRMATION
AND SETTLEMENT

Firms remuneration and promotion structures should encourage practices and be- ANNEX 1
haviours that are consistent with the firms ethical and professional conduct expecta- ANNEX 2
tions; they should not incentivise personnel to engage in inappropriate behaviours or
ANNEX 3
practices, or to take risks beyond the overall business risk parameters of the Market Participant.

10
 GOVERNANCE
PRINCIPLES 4-7

Factors that should be taken into account include but are not limited to:
the mix of pay components, such as fixed and variable;
the form and timing of payment for the variable pay component;

how such structures align the interest of relevant personnel with the interests of the
firm over both short- and long-term horizons; and
appropriate mechanisms to discourage inappropriate practices or behaviours.

PRINCIPLE 7

Market Participants should have appropriate policies

and procedures to handle and respond to potentially
improper practices and behaviours effectively.

Market Participants should maintain policies and procedures, supported by effective

mechanisms, to (i) provide confidential channels for personnel or external parties to
raise concerns about potentially improper practices and behaviours and (ii) investigate
and respond to such reports as appropriate.

Specifically, firms should be clear with relevant personnel and external parties about
where and how to report concerns about potentially improper practices and behaviours
(including but not limited to cases of illegal, unethical, or questionable practices and
behaviours) confidentially and without fear of reprisal or retribution.

Reports of potentially improper practices or behaviour of the Market Participant should

be investigated by independent parties or functions. Such parties or functions should
possess sufficient skills and experienceand be given the necessary resources and ac-
cessto conduct the investigation.

Market Participants should complete the investigation and determine the appropriate CONTENTS
outcome within a reasonable time frame, taking into account the nature and complexity FOREWORD
of the matter in question. Escalation within the firm and reporting outside the firm may
ETHICS
be appropriate before an investigation is concluded. The reports and results should be
brought to the attention of the appropriate individuals within the Market Participant, and GOVERNANCE

if appropriate, to relevant regulatory or public authorities. EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

11
 EXECUTION
PRINCIPLES 8-18

Execution
LEADING PRINCIPLE:
Market Participants are expected to exercise care
when negotiating and executing transactions in
order to promote a robust, fair, open, liquid, and
appropriately transparent FX Market.
The FX execution landscape is diverse, with execution taking place
through many different channels and with Market Participants tak-
ing on different roles with regard to that execution. All FX Market
Participants, regardless of their role in the execution of transactions,
should behave with integrity to support the effective functioning
of the FX Market.

PRINCIPLE 8

Market Participants should be clear about the

capacities in which they act.
CONTENTS
Market Participants should understand and clearly communicate their roles and capacities FOREWORD
in managing orders or executing transactions. Market Participants may have a standing
ETHICS
agreement or other terms of business as to their roles that govern all trades, or they may
manage their relationship by determining their roles on a trade-by-trade basis. If a Market GOVERNANCE

Participant wishes to vary the capacity in which it or its counterpart acts, any such alterna- EXECUTION
tive arrangement should be agreed by both parties. INFORMATION
SHARING
A Market Participant receiving a Client order may: RISK AND
COMPLIANCE
 as an Agent, executing orders on behalf of the Client pursuant to the Client man-
act
date, and without taking on market risk in connection with the order; or CONFIRMATION
AND SETTLEMENT
 as a Principal taking on one or more risks in connection with an order, including
act
ANNEX 1
market and credit risk. Principals act on their own behalf and there is no obligation
to execute the order until both parties are in agreement. Where the acceptance of an ANNEX 2

order grants the Principal executing the order some discretion, it should exercise this ANNEX 3

12
 EXECUTION
PRINCIPLES 8-18

discretion reasonably, fairly, and in such a way that is not designed or intended to
disadvantage the Client.

PRINCIPLE 9

Market Participants should handle orders fairly

and with transparency in line with the capacities
in which they act.

Market Participants are expected to handle orders with fairness and transparency. How
this is done, and what the relevant good practices are, vary depending upon the role in
which those Market Participants are acting, as described in Principle 8 above. While
the FX Market has traditionally operated as a Principal-based market, Agency-based
execution also takes place. Accordingly, this principle takes into account both Principal
and Agency models as well as E-Trading Platforms and Interdealer Brokers.

ROLES
Irrespective of their role, Market Participants handling orders should:

have clear standards in place that strive for a fair and transparent outcome for the
Client;
be truthful in their statements;
use clear and unambiguous language;
make clear whether the prices they are providing are firm or merely indicative;

have adequate processes in place to support the rejection of Client orders for products
they believe to be inappropriate for the Client;
 enter into transactions with the intention of disrupting the market (see Principle 12
not
in Execution for further guidance); and

provide all relevant disclosures and information to a Client before negotiating a Cli- CONTENTS

ent order, thereby allowing the Client to make an informed decision as to whether to FOREWORD
transact or not. ETHICS

GOVERNANCE
Market Participants should make Clients aware of such factors as: EXECUTION

how orders are handled and transacted, including whether orders are aggregated or INFORMATION
time prioritised; SHARING

 potential for orders to be executed either electronically or manually, depending on

the RISK AND
COMPLIANCE
the disclosed transaction terms;
CONFIRMATION
 various factors that may affect the execution policy, which would typically include
the AND SETTLEMENT
positioning, whether the Market Participant managing Client orders is itself taking
ANNEX 1
on the associated risk or not, prevailing liquidity and market conditions, other Client
orders, and/or a trading strategy that may affect the execution policy; ANNEX 2

ANNEX 3

13
 EXECUTION
PRINCIPLES 8-18

where discretion may exist or may be expected, and how it may be exercised; and

whenever possible, what the time-stamping policy is and whether it is applied both
when the order is accepted and when it is triggered or executed (see Principle 36 in
Risk Management and Compliance for further guidance).

Market Participants handling Client orders in a Principal role should:


disclose the terms and conditions under which the Principal will interact with the
Client, which might include:
t hat the Principal acts on its own behalf as a counterparty to the Client;
h ow the Principal will communicate and transact in relation to requests for
quotes, requests for indicative prices, discussion or placement of orders, and all
other expressions of interest that may lead to the execution of transactions; and
h ow potential or actual conflicts of interest in Principal-dealing and market-
making activity may be identified and addressed;
establish clarity regarding the point at which market risk may transfer;

have market-making and risk management activity, such as hedging, commensurate
with their trading strategy, positioning, risk assumed, and prevailing liquidity and
market conditions; and

have internal Mark Up policies consistent with applicable guidelines elsewhere in this
Global Code.

Market Participants handling Client orders in an Agent role should:

communicate with the Client regarding the nature of their relationship;
seek to obtain the result requested by the Client;

establish a transparent order execution policy that should supply information relevant
to the Client order that may include:
i nformation on where the firm may execute the Client orders;
t he factors affecting the choice of execution venues; and
i nformation as to how the Agent intends to provide for the prompt, fair, and CONTENTS
expeditious execution of the Client order; FOREWORD
 transparent with the Client about their terms and conditions, which clearly set out
be ETHICS
fees and commissions applicable throughout the time of the agreement; and
GOVERNANCE

share information relating to orders accepted on an Agency basis with any market-
EXECUTION
making or Principal trading desks only as required to request a competitive quote.
INFORMATION
(See Principle 19 in Information Sharing for further guidance.) SHARING

RISK AND
Market Participants operating FX E-Trading Platforms should: COMPLIANCE
have rules that are transparent to users; CONFIRMATION
AND SETTLEMENT

make clear any restrictions or other requirements that may apply to the use of the
ANNEX 1
electronic quotations;
ANNEX 2
establish clarity regarding the point at which market risk may transfer;
ANNEX 3

14
 EXECUTION
PRINCIPLES 8-18


have appropriate disclosure about subscription services being offered and any asso-
ciated benefits, including market data (so that Clients have the opportunity to select
among all services they are eligible for).

Market Participants acting as Interdealer Brokers (IDBs) should:


meet similar expectations as described above for Market Participants handling Client
orders in an Agent role.

IDBs may operate via voice, such as Voice Brokers, or may operate either partially
or wholly electronically. Those with an electronic component are also considered FX
E-Trading Platforms and thus should also meet the expectations described for Market
Participants operating FX E-Trading Platforms.

Market Participants acting as Clients should:

be aware of the responsibilities they should expect of others as highlighted above;
be aware of the risks associated with the transactions they request and undertake; and
regularly evaluate the execution they receive.

PRINCIPLE 10

Market Participants should handle orders fairly, with

transparency, and in a manner consistent with the
specific considerations relevant to different order types.

Market Participants should be aware that different order types may have specific consid-
erations for execution. For example:

Market Participants handling a Clients Stop Loss Order should:


obtain from the Client the information required to fully define the terms of a Stop Loss CONTENTS
Order, such as the reference price, order amount, time period, and trigger;
FOREWORD

disclose to Clients whether risk management transactions may be executed close to
ETHICS
a Stop Loss Order trigger level, and that those transactions may impact the reference
price and result in the Stop Loss Order being triggered. GOVERNANCE

Indicative Examples of Unacceptable Practices: EXECUTION


trading or otherwise acting in a manner designed to move the market INFORMATION
SHARING
to the Stop Loss level; and
RISK AND
offering Stop Loss Orders on a purposefully loss-making basis. COMPLIANCE

CONFIRMATION
Market Participants filling a Client order, which may involve a partial fill, should: AND SETTLEMENT

 fair and reasonable based upon prevailing market circumstances, and any other
be ANNEX 1

applicable factors disclosed to the Client, in determining if and how a Client order is ANNEX 2
filled, paying attention to any other relevant policies; ANNEX 3

15
 EXECUTION
PRINCIPLES 8-18


make a decision on whether, and how, to fill a Client order, including partial fills, and
communicate that decision to the Client as soon as practicable; and

fully fill Client orders they are capable of filling within the parameters specified by
the Client, subject to factors such as the need to prioritise among Client orders and the
availability of the Market Participants credit line for the Client at the time.

Market Participants handling a Clients order to transact at a particular fixing rate

(Fixing Order):
should understand the associated risks and be aware of the appropriate procedures;

should not, whether by collusion or otherwise, inappropriately share information or
attempt to influence the exchange rate;

should not intentionally influence the benchmark fixing rate to benefit from the fixing,
whether directly or in respect of any Client-related flows at the underlying fixing; and

should behave consistently with the Financial Stability Boards Foreign Exchange
Benchmark Report Recommendations,4 including but not limited to:
p ricing transactions in a manner that is transparent and is consistent with the risk
borne in accepting such transactions; and
e stablishing and enforcing internal guidelines and procedures for collecting and
executing Fixing Orders.
Indicative Examples of Acceptable Practices:

transacting an order over time before, during, or after its fixing calcu-
lation window, so long as not to intentionally negatively impact the
market price and outcome to the Client.
collecting all Client interest and executing the net amount;
Indicative Examples of Unacceptable Practices:

buying or selling a larger amount than the Clients interest within sec-
onds of the fixing calculation window with the intent of inflating or
deflating the price against the Client;

buying or selling an amount shortly before a fixing calculation window
CONTENTS
such that there is an intentionally negative impact on the market price
FOREWORD
and outcome to the Client;
ETHICS

showing large interest in the market during the fixing calculation win-
dow with the intent of manipulating the fixing price against the Client; GOVERNANCE

informing others of a specific Client dealing at a fixing rate; and EXECUTION


acting with other Market Participants to inflate or deflate a fixing rate INFORMATION
SHARING
against the interests of a Client. (See Principles 19 and 20 in Informa-
tion Sharing for further guidance.) RISK AND
COMPLIANCE
Finally, Market Participants handling orders that have the potential to have sizable mar-
CONFIRMATION
ket impact should do so with particular care and attention. For example, there are certain AND SETTLEMENT
transactions that may be required in the course of business, such as those related to
ANNEX 1
merger and acquisition activity, which could have a sizable impact on the market.
ANNEX 2
4
See the Financial Stability Board Final Report on Foreign Exchange Benchmarks, September 30, 2014. ANNEX 3

16
 EXECUTION
PRINCIPLES 8-18

PRINCIPLE 11

A Market Participant should only Pre-Hedge Client

orders when acting as a Principal, and should do so
fairly and with transparency.

Pre-Hedging is the management of the risk associated with one or more anticipated
Client orders, designed to benefit the Client in connection with such orders and any
resulting transactions.

Market Participants may Pre-Hedge for such purposes and in a manner that is not meant
to disadvantage the Client or disrupt the market. Market Participants should communi-
cate their Pre-Hedging practices to their Clients in a manner meant to enable Clients to
understand their choices as to execution.
In assessing whether Pre-Hedging is being undertaken in accordance with the principles
above, a Market Participant should consider prevailing market conditions (such as
liquidity) and the size and nature of the anticipated transaction.
While undertaking Pre-Hedging, a Market Participant may continue to conduct ongoing
business, including risk management, market making, and execution of other Client
orders. When considering whether Pre-Hedging is being undertaken in accordance
with the principles above, Pre-Hedging of a single transaction should be considered
within a portfolio of trading activity, which takes into account the overall exposure of
the Market Participant.

When a Market Participant is acting as an Agent, the Market Participant should not
Pre-Hedge.

See Annex 1 for a set of stylised examples regarding Pre-Hedging.

PRINCIPLE 12 CONTENTS

Market Participants should not request transactions, FOREWORD

create orders, or provide prices with the intent of ETHICS

disrupting market functioning or hindering the price GOVERNANCE

discovery process. EXECUTION

INFORMATION
SHARING
Market Participants should not engage in trading strategies or quote prices with the intent
RISK AND
of hindering market functioning or compromising market integrity. Such strategies include COMPLIANCE
those that may cause undue latency, artificial price movements, or delays in other Market
CONFIRMATION
Participants transactions and result in a false impression of market price, depth, or liquid- AND SETTLEMENT
ity. Such strategies also include collusive and/or manipulative practices, including but not
ANNEX 1
limited to those in which a trader enters a bid or offer with the intent to cancel before exe-
cution (sometimes referred to as spoofing, flashing. or layering) and other practices ANNEX 2

ANNEX 3

17
 EXECUTION
PRINCIPLES 8-18

that create a false sense of market price, depth, or liquidity (sometimes referred to as quote
stuffing or wash trades).

Market Participants providing quotations should always do so with a clear intent to

trade. Prices provided for reference purposes only should clearly be labelled as such.

Market Participants should give appropriate consideration to market conditions and the
potential impact of their transactions and orders. Transactions should be conducted at
prices or rates based on the prevailing market conditions at the time of the transaction.
Exceptions to this, such as historical rate rollovers, should be covered by internal com-
pliance policies.

Without limitation, Market Participants handling Client orders may decline a transaction
when there are grounds to believe that the intent is to disrupt or distort market function-
ing. Market Participants should escalate as appropriate.

See Annex 1 for a set of stylised examples regarding handling of orders and market
disruptions.

PRINCIPLE 13

Market Participants should understand how reference

prices, including highs and lows, are established in
connection with their transactions and/or orders.

This understanding should be supported by appropriate communications between the

parties, which may include disclosures. In the event that a third-party pricing source
is an input in establishing this reference price, both parties should understand how that
pricing measure is determined and what the contingency arrangements are in the event
that the third-party pricing is unavailable. CONTENTS

FOREWORD

ETHICS

GOVERNANCE
PRINCIPLE 14
EXECUTION
The Mark Up applied to Client transactions INFORMATION
by Market Participants acting as Principal should be SHARING

fair and reasonable. RISK AND

COMPLIANCE

CONFIRMATION
Mark Up is the spread or charge that may be included in the final price of a transaction AND SETTLEMENT
in order to compensate the Market Participant for a number of considerations, which ANNEX 1
might include risks taken, costs incurred, and services rendered to a particular Client.
ANNEX 2

ANNEX 3

18
 EXECUTION
PRINCIPLES 8-18

Market Participants should promote transparency by documenting and publishing a set

of disclosures regarding their FX business that, among other things:
makes it clear to Clients that their final transaction price may be inclusive of Mark Up;

makes it clear to Clients that different Clients may receive different prices for transac-
tions that are the same or similar;

helps Clients understand the determination of Mark Up, such as by indicating the
factors that may contribute to the Mark Up (including those related to the nature of the
specific transaction and those associated with the broader Client relationship, as well
as any relevant operating costs); and

discloses to Clients how Mark Up may impact the pricing and/or execution of any
order linked to or triggered at a specific level.

Firms should have policies and procedures that enable personnel to determine an appro-
priate and fair Mark Up. These policies and procedures should include, at a minimum:

guidance that prices charged to Clients should be fair and reasonable considering
applicable market conditions and internal risk management practices and policies; and

guidance that personnel should always act honestly, fairly, and professionally when
determining Mark Up, including not misrepresenting any aspect of the Mark Up to
the Client.

Market Participants should have processes to monitor whether their Mark Up practices
are consistent with their policies and procedures, and with their disclosures to Clients.
Mark Up should be subject to oversight and escalation within the Market Participant.

See Annex 1 for a set of stylised examples regarding Mark Up.

PRINCIPLE 15

Market Participants should identify and resolve trade CONTENTS

discrepancies as soon as practicable to contribute to a FOREWORD

well-functioning FX Market. ETHICS

GOVERNANCE
Market Participants should have effective policies and procedures designed to minimise EXECUTION
the number of trade discrepancies arising from their FX Market activities and should
INFORMATION
manage such discrepancies promptly. SHARING

RISK AND
Market Participants acting as Prime Brokers play a unique role in assuming the credit COMPLIANCE
risk of authorised trades executed by their prime brokerage Clients. Where the Client
CONFIRMATION
identity is known, prime brokerage Clients and executing dealers are responsible for re- AND SETTLEMENT
solving trade discrepancies to achieve timely amendments and matching of trade terms ANNEX 1
through the Prime Broker.
ANNEX 2

ANNEX 3

19
 EXECUTION
PRINCIPLES 8-18

When anonymous market access is provided, the access provider should assist in the
resolution of trade discrepancies.

See Principle 48 for Confirmation and Settlement discrepancies.

PRINCIPLE 16

Market Participants acting as Voice Brokers should

only employ name switching where there is insufficient
credit between parties to the transaction.

Voice Brokers that undertake name switching should:

have proper controls and appropriately monitor such transactions;
have proper approvals;

execute, and book, such transactions as promptly as possible, consistent with the ap-
propriate protection of related Confidential Information; and
maintain proper records of such activity.

A dealer should not solicit or accept favours from a Voice Broker for switching names.

PRINCIPLE 17

Market Participants employing last look should be

transparent regarding its use and provide appropriate
disclosures to Clients.
CONTENTS
Last look is a practice utilised in Electronic Trading Activities whereby a Market Par-
FOREWORD
ticipant receiving a trade request has a final opportunity to accept or reject the request
against its quoted price. Market Participants receiving trade requests that utilise the last ETHICS

look window should have in place governance and controls around its design and use, GOVERNANCE
consistent with disclosed terms. This may include appropriate management and compli- EXECUTION
ance oversight.
INFORMATION
SHARING
A Market Participant should be transparent regarding its last look practices in order for
RISK AND
the Client to understand and to be able to make an informed decision as to the manner COMPLIANCE
in which last look is applied to their trading. The Market Participant should disclose,
CONFIRMATION
at a minimum, explanations regarding whether, and if so how, changes to price in AND SETTLEMENT
either direction may impact the decision to accept or reject the trade, the expected or ANNEX 1
typical period of time for making that decision, and more broadly the purpose for using
ANNEX 2
last look.
ANNEX 3

20
 EXECUTION
PRINCIPLES 8-18

If utilised, last look should be a risk control mechanism used in order to verify validity
and/or price. The validity check should be intended to confirm that the transaction de-
tails contained in the request to trade are appropriate from an operational perspective
and there is sufficient available credit to enter into the transaction contemplated by the
trade request. The price check should be intended to confirm whether the price at which
the trade request was made remains consistent with the current price that would be
available to the Client.

In the context of last look, the Market Participant has sole discretion, based upon the
validity and price check processes, over whether the Clients trade request is accepted
or not, leaving the Client with potential market risk in the event the trade request is not
accepted. Accordingly, and consistent with related principles in the Global Code:

Last look should not be used for purposes of information gathering with no intention
to accept the Clients request to trade.

Confidential Information arises at the point the Market Participant receives a trade
request at the start of the last look window, and use of such Confidential Information
should be consistent with Principles 19 and 20 on Information Sharing.

During the last look window, trading activity that utilises the information from the
Clients trade request, including any related hedging activity, is likely inconsistent
with good market practice because it may signal to other Market Participants the
Clients trading intent, skewing market prices against the Client, which (1) is not
likely to benefit the Client, and (2) in the event that the Market Participant rejects the
Clients request to trade, constitutes use of Confidential Information in a manner not
specified by the Client.

It is good practice for Market Participants to be available to engage in a dialogue with

Clients regarding how their trade requests have been handled, including the appropri-
ate treatment of information associated with those orders. Such dialogue could include
metrics that facilitate transparency around the pricing and execution of the Clients trade
requests and assist a Client in evaluating the handling of its trade requests in order to
evaluate whether the execution methodology continues to meet its needs over time.
CONTENTS

FOREWORD

ETHICS
PRINCIPLE 18
GOVERNANCE

Market Participants providing algorithmic trading EXECUTION

or aggregation services to Clients should provide INFORMATION

SHARING
adequate disclosure regarding how they operate.
RISK AND
COMPLIANCE
Market Participants may provide Clients with algorithmic trading services that use com-
CONFIRMATION
puter programs applying algorithms to determine various aspects, including price and AND SETTLEMENT
quantity of orders. ANNEX 1

ANNEX 2

ANNEX 3

21
 EXECUTION
PRINCIPLES 8-18

Market Participants may also provide aggregation services to Clients, services that pro-
vide access to multiple liquidity sources or execution venues and that may include order
routing to those liquidity sources or venues.

Market Participants providing algorithmic trading or aggregation services to Clients

should disclose the following:
a clear description of the algorithmic execution strategy or the aggregation strategy
and sufficient information to enable the Client to evaluate the performance of the ser-
vice, in a manner that is consistent with appropriate protection of related Confidential
Information;

whether the algorithm provider or the aggregation service provider could execute
as Principal;
the fees applicable to the provision of the services;
 the case of algorithmic trading services, general information regarding how routing
in
preferences may be determined; and
 the case of aggregation services, information on the liquidity sources to which
in
access may be provided.

Clients of algorithmic trading providers should use such data and disclosed information
in order to evaluate, on an ongoing basis, the appropriateness of the trading strategy to
their execution strategy.

Clients that use an aggregator to access trading venues should understand the parameters
that will define the prices displayed by the aggregator.

Market Participants providing algorithmic trading or aggregation services should provide

services that perform in the manner disclosed to the Client.

CONTENTS

FOREWORD

ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

22
 INFORMATON SHARING
PRINCIPLES 19-23

Information
Sharing
LEADING PRINCIPLE:
Market Participants are expected to be clear and
accurate in their communications and to protect
Confidential Information to promote effective
communication that supports a robust, fair, open,
liquid, and appropriately transparent FX Market.

I. Handling Confidential Information

PRINCIPLE 19

Market Participants should clearly and effectively

identify and appropriately limit access to Confidential
Information. CONTENTS

FOREWORD
Market Participants should identify Confidential Information. Confidential Information ETHICS
includes the following information not in the public domain received or created by a
GOVERNANCE
Market Participant:
EXECUTION
(i) FX Trading Information. This can take various forms, including information re-
lating to the past, present, and future trading activity or positions of the Market INFORMATION
SHARING
Participant itself or of its Clients, as well as related information that is sensitive
and is received or produced in the course of such activity. Examples include but RISK AND
COMPLIANCE
are not limited to:
CONFIRMATION
d etails of a Market Participants order book; AND SETTLEMENT

o ther Market Participants Axes; ANNEX 1

s pread matrices provided by Market Participants to their Clients; and ANNEX 2

o rders for benchmark fixes. ANNEX 3

23
 INFORMATON SHARING
PRINCIPLES 19-23

(ii) Designated Confidential Information. Market Participants may agree to a higher

standard of non-disclosure with respect to confidential, proprietary, and other
information, which may be formalised in a written non-disclosure or a similar
confidentiality agreement.

Identification of Confidential Information should be in line with any legal or contractual

restrictions to which the Market Participant may be subject.

Market Participants should limit access to and protect Confidential Information.


Market Participants should not disclose Confidential Information except to those in-
ternal or external parties who have a valid reason for receiving such information, such
as to meet risk management, legal, and compliance needs.

Market Participants should not disclose Confidential Information to any internal or
external parties under any circumstances where it appears likely that such party will
misuse the information.

Confidential Information obtained from a Client, prospective Client, or other third party
is to be used only for the specific purpose for which it was given, except as provided
above or otherwise agreed with a Client.

Market Participants acting as Prime Brokers should have an appropriate level of
separation between their prime brokerage business and their other sales and trading
business.
To avoid any potential conflict of interest, a Prime Broker should have appropri-
ate information barriers in place.
P
 rime Brokers should be transparent as to the standards they require and adopt.

For a discussion of Market Colour, please see Principle 22.

PRINCIPLE 20
CONTENTS
Market Participants should not disclose Confidential
FOREWORD
Information to external parties, except under specific
ETHICS
circumstances.
GOVERNANCE

EXECUTION
Market Participants should disclose Confidential Information only under certain circum-
stances. These may include, but are not limited to, disclosure: INFORMATION
SHARING
 Agents, market intermediaries (such as brokers or trading platforms), or other Mar-
to
RISK AND
ket Participants to the extent necessary for executing, processing, clearing, novating, COMPLIANCE
or settling a transaction;
CONFIRMATION
with the consent of the counterparty or Client; AND SETTLEMENT


required to be publicly disclosed under Applicable Law, or as otherwise requested by ANNEX 1

a relevant regulatory or public authority; ANNEX 2

as requested by a central bank acting for policy purposes; and ANNEX 3

24
 INFORMATON SHARING
PRINCIPLES 19-23

 advisors or consultants on the condition that they protect the Confidential Informa-
to
tion in the same manner as the Market Participant that is disclosing the Confidential
Information to such advisors or consultants.
Market Participants may actively choose to share their own prior positions and/or trad-
ing activity so long as that information does not reveal any other partys Confidential
Information and the information is not shared in order to disrupt market function or
hinder the price discovery process, or in furtherance of other manipulative or collusive
practices.

Market Participants should only ask for Confidential Information where it is appropriate
to do so consistent with Principle 20.

When determining whether to release Confidential Information, Market Participants

should take into account Applicable Law, as well as any agreed-to restrictions that may
limit the release.

II. Communications
PRINCIPLE 21

Market Participants should communicate in a manner

that is clear, accurate, professional, and not misleading.

Communications should be easily understood by their intended recipient. Therefore,

Market Participants should use terminology and language that is appropriate for the au-
dience and should avoid using ambiguous terms. To support the accuracy and integrity
of information, Market Participants should:

attribute information derived from a third party to that third party (for example, a
news service);
CONTENTS
identify opinions clearly as opinions;
FOREWORD
not communicate false information;
ETHICS

exercise judgement when discussing rumours that may be driving price movements,
GOVERNANCE
identify rumours as rumours, and not spread or start rumours with the intention of
moving markets or deceiving other Market Participants; and EXECUTION

 provide misleading information in order to protect Confidential Informationfor

not INFORMATION
SHARING
example, when executing partial orders. Accordingly, Market Participants could, if
asked, decline to disclose whether their request to transact is for the full amount rather RISK AND
COMPLIANCE
than inaccurately suggest that it is for the full amount.
CONFIRMATION
AND SETTLEMENT
Market Participants should be mindful that communications by personnel reflect on the
ANNEX 1
firm they represent as well as the industry more broadly.
ANNEX 2

ANNEX 3

25
 INFORMATON SHARING
PRINCIPLES 19-23

PRINCIPLE 22

Market Participants should communicate Market

Colour appropriately and without compromising
Confidential Information.

The timely dissemination of Market Colour between Market Participants can contribute
to an efficient, open, and transparent FX Market through the exchange of information on
the general state of the market, views, and anonymised and aggregated flow information.

Firms should give clear guidance to personnel on how to appropriately share Market
Colour. In particular, communications should be restricted to information that is
effectively aggregated and anonymised.

To this end:

communications should not include specific Client names, other mechanisms for com-
municating a Clients identity or trading patterns externally (for example, code names
that implicitly link activity to a specific Market Participant), or information specific
to any individual Client;

Client groups, locations, and strategies should be referred to at a level of general-
ity that does not allow Market Participants to derive the underlying Confidential
Information;

communications should be restricted to sharing market views and levels of conviction,
and should not disclose information about individual trading positions;

flows should be disclosed only by price range, and not by exact rates relating to a
single Client or flow, and volumes should be referred to in general terms, other than
publicly reported trading activity;

option interest not publicly reported should only be discussed in terms of broadly
observed structures and thematic interest;

references to the time of execution should be general, except where this trading infor-
CONTENTS
mation is broadly observable;
FOREWORD

Market Participants should take care when providing information to Clients about the
status of orders (including aggregated and anonymised Fixing Orders) to protect the ETHICS

interests of other Market Participants to whom the information relates (this is partic- GOVERNANCE
ularly true when there are multiple orders at the same level or in close proximity to EXECUTION
one another); and
INFORMATION

Market Participants should not solicit Confidential Information in the course of pro- SHARING
viding or receiving Market Colour. RISK AND
COMPLIANCE
See Annex 1 for a set of stylised examples of Market Colour communications. CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

26
 INFORMATON SHARING
PRINCIPLES 19-23

PRINCIPLE 23

Market Participants should provide personnel with

clear guidance on approved modes and channels of
communication.

Market Participants should communicate with other Market Participants through ap-
proved methods of communication that allow for traceability, auditing, record keeping,
and access control. Standards of information security should apply regardless of the
specific mode of communication in use. Where possible, Market Participants should
maintain a list of approved modes of communication and it is recommended that com-
munication channels on sales and trading desks be recorded, particularly when being
used to transact or share Market Colour. Market Participants should give consideration,
under exceptional circumstances (for example, in an emergency and for business conti-
nuity purposes), to allowing the use of unrecorded lines but should provide guidance to
personnel regarding any permitted use of such unrecorded lines or devices.

CONTENTS

FOREWORD

ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

27
 RISK AND COMPLIANCE
PRINCIPLES 24-41

Risk Management
and Compliance
LEADING PRINCIPLE:
Market Participants are expected to promote
and maintain a robust control and compliance
environment to effectively identify, manage,
and report on the risks associated with their
engagement in the FX Market.

I. Frameworks for Risk Management,

Compliance, and Review
Appropriate risk management, compliance, and review structures
should be in place to manage and mitigate the risks that arise from
a Market Participants activities in the FX Market. These structures
vary in complexity and scope, but generally share some common
CONTENTS
aspects. For example:
FOREWORD


The responsibility rests with the business unit which owns the risk it incurs in con- ETHICS

ducting its activities. GOVERNANCE

 addition, there may be both a risk management function that oversees risk-taking
In EXECUTION
activities and assesses those risks independently from the business line, and an in- INFORMATION
dependent compliance function that monitors compliance with Applicable Law and SHARING
Standards. RISK AND
COMPLIANCE

Finally, there may be a review or audit function that provides independent review of,
among other things, internal control systems and the activities of the business unit and CONFIRMATION
AND SETTLEMENT
the risk management and compliance functions.
ANNEX 1

ANNEX 2

ANNEX 3

28
 RISK AND COMPLIANCE
PRINCIPLES 24-41

Periodic independent reviews of risk and compliance controls should also be under-
taken, including a review of the qualitative and quantitative assumptions within the risk
management system.

The principles below describe numerous recommendations that illustrate how to achieve
robust frameworks for risk management, compliance, and review. However, not every
recommendation may be appropriate for every Market Participant. Accordingly, Market
Participants should assess which recommendations are appropriate based on the size and
complexity of their FX Market activities, and the nature of their engagement in the FX
Market, taking into account Applicable Law.

PRINCIPLE 24

Market Participants should have frameworks for risk

management and compliance.

The common components of these two frameworks may include:

E
 ffective oversight by the senior body or individual(s), consistent with Principle 4,
including support for the stature and independence of risk management and compli-
ance. In particular:
t he senior body or individual(s) should make strategic decisions on the risk
appetite of the FX business.
t he senior body or individual(s) should be responsible for the establishment,
communication, enforcement, and regular review of a risk management and
compliance framework that clearly specifies authorities, limits, and policies.
Risks should be managed prudently and responsibly in accordance with estab-
lished principles of risk management and Applicable Law.

The provision of concise, timely, accurate, and understandable risk- and compliance-
related information to the senior body or individual(s). CONTENTS

The appropriate segregation of duties and independent reporting lines, including the FOREWORD
segregation of trading from risk management and compliance and from deal process-
ETHICS
ing, accounting, and settlement. While risk managers and compliance personnel may
work closely with business units, the risk management and compliance functions GOVERNANCE

should be independent of the business unit and should not be directly involved in EXECUTION
revenue generation. Compensation structures should be designed not to compromise INFORMATION
such independence. SHARING


Adequate resources and employees with clearly specified roles, responsibilities, and RISK AND
COMPLIANCE
authority, including appropriate access to information and systems. These personnel
should have appropriate knowledge, experience, and training. CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

29
 RISK AND COMPLIANCE
PRINCIPLES 24-41

PRINCIPLE 25

Market Participants should familiarise themselves

with, and abide by, all Applicable Law and Standards
that are relevant to their FX Market activities and
should have an appropriate compliance framework
in place.

An effective compliance framework should provide independent oversight and control and
could comprise, but is not limited to:
identification of Applicable Law and Standards that apply to their FX Market activities;

appropriate processes designed to prevent and detect abusive, collusive, or manipulative
practices, fraud, and financial crime, and to mitigate material risk that could arise in the
general conduct of the FX Market activities;

capturing and retaining adequate records to enable effective monitoring of compliance
with Applicable Law and Standard;
well-defined escalation procedures for issues identified;

consideration of the need to periodically restrict relevant personnels access through mea-
sures such as mandatory vacation to facilitate detection of possible fraudulent activities;
 provision of advice and guidance to senior management and personnel on the appro-
the
priate implementation of Applicable Law, external codes, and other relevant guidance in
the form of policies and procedures and other documents such as compliance manuals
and internal codes of conduct;

training and/or attestation processes to promote awareness of and compliance with
Applicable Laws and Standards;

appropriate implementation and utilisation of compliance programs (for example, the
establishment of processes to monitor daily activities and operations); and
t he periodic review and assessment of compliance functions and controls, including mecha-
nisms to alert senior management about material gaps or failures in such functions and controls. CONTENTS
The appropriate senior body or individual(s) should oversee the timely resolution of any issues.
FOREWORD

ETHICS

GOVERNANCE

EXECUTION
PRINCIPLE 26
INFORMATION
Market Participants should maintain an appropriate SHARING

risk management framework with systems and internal RISK AND

COMPLIANCE
controls to identify and manage the FX risks they face. CONFIRMATION
AND SETTLEMENT

Effective risk management starts with the identification and understanding by Market ANNEX 1
Participants of the various types of risks to which they are exposed (see the section on ANNEX 2
Key Risk Types below), and typically involves the establishment of risk limits and mon-
ANNEX 3

30
 RISK AND COMPLIANCE
PRINCIPLES 24-41

itoring mechanisms, as well as the adoption of risk-mitigating and other prudent prac-
tices. An effective risk management framework could comprise, but is not limited to:
an appropriate and well-documented approval process for the setting of risk limits;
a comprehensive and well-documented strategy for the identification, measurement,
aggregation, and monitoring of risks across the FX business, including, for example,
risks that may be specific to a Market Participant that intermediates Client trades as a
Prime Broker or that provides market access;

documented policies, procedures, and controls, which are periodically reviewed and
tested, to manage and mitigate risks;
 clear communication of risk management policies and controls within the insti-
the
tution to promote awareness and compliance, as well as processes and programs to
facilitate the understanding of such policies and controls by personnel;
information systems to facilitate the effective monitoring and timely reporting of risks;

robust incident management, including appropriate escalation, mitigating actions, and
lessons learned;

robust risk assessment for all (and approval processes for new) products, services, and
procedures to identify new or emerging risks;

sound accounting policies and practices encompassing prudent and consistent valua-
tion methods and procedures; and
 appropriately robust risk control self-assessment process that includes processes to
an
remediate identified gaps or weaknesses.

Certain Market Participants provide credit intermediation and/or market access to other
Market Participantsfor example Prime Brokers and E-Trading Platforms. These Market
Participants should have a risk management and compliance framework that takes this activ-
ity into account. In addition, these Market Participants are encouraged to engage in ongoing
dialogue with those for whom they are providing credit intermediation and/or access to the
market to underscore expectations regarding appropriate behaviour in the market.

CONTENTS

FOREWORD
PRINCIPLE 27
ETHICS
Market Participants should have practices in place to GOVERNANCE
limit, monitor, and control the risks related to their FX EXECUTION
Market trading activity. INFORMATION
SHARING

These practices could comprise, but are not limited to: RISK AND
COMPLIANCE

The regular monitoring of trading activities, including the identification and internal
CONFIRMATION
escalation, as appropriate, of failed, cancelled, or erroneous trades. AND SETTLEMENT

Automated or manual monitoring systems to detect actual or attempted market mis- ANNEX 1
conduct and market manipulation. Relevant personnel should be qualified to detect
ANNEX 2
trading patterns that may suggest unfair or manipulative practices. Market Partici-
ANNEX 3

31
 RISK AND COMPLIANCE
PRINCIPLES 24-41

pants may use certain statistics or metrics to flag behaviour warranting further review,
such as off-market rates, repetitive orders, and unusually small or large orders. There
should be appropriate processes whereby suspicious practices can be promptly re-
viewed and escalated as appropriate.

Verification of the valuations used for risk management and accounting purposes,
conducted by personnel independent of the business unit that owns the risk.

Independent reporting on a regular and timely basis of risk positions and trader
profit/loss statements to the relevant risk management function or senior manage-
ment, as appropriate, including a review of exceptional deviations of profit/loss
from expected levels.

Transactions should be promptly and accurately captured so that risk positions
can be calculated in an accurate and timely manner for monitoring purposes (see
Principle 36).

Regular reconciliations of front, middle, and back office systems, with differences
identified and their resolution tracked by personnel independent of the business unit.
 imely reporting to a senior body or individual(s) when risk limits have been breached,
T
including follow-up action to bring exposures within limits, and any appropriate mea-
sures to prevent a recurrence.

Appropriate controls around proper order and quote submission, such as kill switches
or throttles in the case of electronic trading submissions. These controls should be
designed to prevent the entry or transmission of erroneous orders or quotes that exceed
pre-set size and price parameters as well as financial exposure thresholds.

Market Participants should be aware of the risks associated with reliance on a single
source of liquidity and incorporate contingency plans as appropriate.

PRINCIPLE 28

Market Participants should have processes in place CONTENTS

to independently review the effectiveness of and FOREWORD
adherence to the risk management and compliance ETHICS
functions. GOVERNANCE

EXECUTION

Independent review should be performed regularly, with any review findings recorded
INFORMATION
and corrective action tracked. SHARING
 material risk related to FX Market activities should be covered, using an appropri-
All RISK AND
ate assessment methodology. COMPLIANCE


The review team should be given the necessary mandate and support, including CONFIRMATION
AND SETTLEMENT
adequate personnel with requisite experience or expertise.
ANNEX 1
Findings should be reported to an appropriately senior level for review and follow-up.
ANNEX 2

The above may be undertaken by the audit function where appropriate. ANNEX 3

32
 ETHICS
PRINCIPLES 1-4

II. Key Risk Types

Market Participants may be subject to different risks, and to varying
degrees, depending on the size and complexity of their FX Market
activities, and the nature of their engagement in the FX Market.
With this in mind, the principles below outline some of the good
practices relevant to the key risk types applicable to FX activities.

CREDIT/COUNTERPARTY RISK
PRINCIPLE 29

Market Participants should have adequate processes

to manage counterparty credit risk exposure, including
where appropriate, through the use of appropriate
netting and collateral arrangements, such as legally
enforceable master netting agreements and credit
support arrangements.

The use of master netting agreements and credit support arrangements helps to strengthen the
smooth functioning of the FX Market. Other measures to manage counterparty credit risk in-
clude the accurate and timely assessment of a counterpartys creditworthiness prior to a trans-
action, sufficient diversification of counterparty exposure where appropriate, the prompt setting
and monitoring of counterparty exposure limits, and the acceptance of transactions only if they
fall within approved limits. Credit limits should be set independently of the front office, and
should reflect the established risk appetite of the Market Participant.

Market Participants should maintain accurate records material to their counterparty rela-
tionships. This could include records of conversations and written correspondence, and
CONTENTS
retention policies should be aligned with Applicable Law.
FOREWORD

ETHICS

GOVERNANCE
MARKET RISK EXECUTION

PRINCIPLE 30 INFORMATION
SHARING

Market Participants should have processes to measure, RISK AND

COMPLIANCE
monitor, report, and manage market risk in an accu-
CONFIRMATION
rate and timely way. AND SETTLEMENT

ANNEX 1
Changes in FX prices or rates give rise to market risk, which could have an adverse ANNEX 2
effect on the financial condition of Market Participants. Market risk measurement
ANNEX 3
should be based on generally accepted measurement techniques and concepts, including

33
 RISK AND COMPLIANCE
PRINCIPLES 24-41

the use of stress testing. Such measurement techniques should be periodically and inde-
pendently reviewed. The measurement of market risk should take into account hedging
and diversification effects.

Market Participants should be aware of, monitor, andwhere appropriatemitigate the

liquidity risk that could arise from their transactions in the FX Market.

PRINCIPLE 31

Market Participants should have independent processes

in place to mark-to-market trading positions to mea-
sure the size of their profit and loss and the market risk
arising from trading positions.

In marking-to-market trading positions, quoted market prices, where available, are gen-
erally the best guide. When obtaining external data for valuation purposes:
useful sources of data include screen services, brokers, and other third-party providers;
a function independent of the front office should check that prices and marked-to-market
valuations are measured accurately and regularly;

there should be understanding of what the data representfor example, if the price
was the last actual trade, when the last trade was executed, and if prices were not actual
trades how these were calculated.

Market Participants should have an internal agreed close of business for each trading
day against which end-of-day positions can be monitored and evaluated.

Where reference market prices are not available (for example, in marking-to-market complex
derivatives or exotic instruments), internal models, validated by an internal function that is
independent from the front office, can be used to guide the appropriate pricing of risks. CONTENTS

FOREWORD

ETHICS

OPERATIONAL RISK GOVERNANCE

EXECUTION
PRINCIPLE 32
INFORMATION
SHARING
Market Participants should have appropriate processes
RISK AND
in place to identify and manage operational risks COMPLIANCE

that may arise from human error, inadequate or failed CONFIRMATION

AND SETTLEMENT
systems or processes, or external events.
ANNEX 1

ANNEX 2
Market Participants should take into consideration operational risks arising from a
global cross-border environment, such as time differences or differences in industry ANNEX 3

34
 RISK AND COMPLIANCE
PRINCIPLES 24-41

conventions. Operational risks could include those arising from human error, miscon-
duct, systems issues, or unforeseen external circumstances.

Market Participants should put in place strict security measures to address the vulnera-
bility of trading areas and infrastructure to possible operational disruptions, terrorism, or
sabotage. Access to the dealing function should be controlled, with procedures in place
that specify time constraints, security checks, and management approvals around access,
where appropriate, for non-dealing personnel and external visitors.

PRINCIPLE 33

Market Participants should have business continuity

plans (BCPs) in place that are appropriate to the
nature, scale, and complexity of their FX business and
that can be implemented quickly and effectively in
the event of large-scale disasters, loss of access
to significant trading platforms, settlement, or other
critical services, or other market disruptions.

BCPs could comprise, but are not limited to, the following elements:

Contingency plans that support business continuity across the FX business, including
plans related to data storage and usage, and procedures in the event of the non-
availability of FX fixes, where relevant.

The regular review, updating, and testing of contingency plans, including drills to
familiarise senior management and relevant personnel with the arrangements under a
contingent situation. This should include the regular review of potential scenarios that
would require the activation of such plans.

Disaster recovery plans that identify requisite systems and procedural backups. All CONTENTS
critical automated processes as determined by the Market Participant should have a
FOREWORD
documented automated and/or manual contingency.
ETHICS

The identification of external dependencies, including an understanding of the BCPs
of settlement system operators and other infrastructure and critical service providers, GOVERNANCE

as well as the appropriate inclusion of these plans, or other back-up processes, into EXECUTION
Market Participants own BCPs. INFORMATION

Emergency contact information for both internal and external dependencies. Commu- SHARING

nication tools should be secure. RISK AND

COMPLIANCE

Non-primary location backup sites that can accommodate essential personnel, sys-
CONFIRMATION
tems, and operations, and that are maintained and tested on a regular basis. AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

35
 RISK AND COMPLIANCE
PRINCIPLES 24-41

TECHNOLOGY RISK
PRINCIPLE 34

Market Participants should have in place processes to

address potential adverse outcomes arising from the
use of or reliance on technological systems (hardware
and software).

Market Participants should have processes in place to assign clear ownership of every
system on which they rely, and changes should be approved according to internal
policies. Any system should be thoroughly tested before release into production use,
with an audit trail of all actions taken saved and available for review. This should apply
to the development, testing, deployment, and subsequent updates of trading systems
and algorithms. Market Participants should also be aware of broader risks that may
exist and affect their FX Market activity, such as risks related to cyber security.

Market Participants operating E-Trading Platforms should monitor the intraday health
of the platform (for example, capacity utilisation) and should conduct periodic capacity
testing of critical systems to determine such systems ability to process transactions
in an accurate, timely, and robust manner.

Market Participants involved in electronic trading should put in place appropriate and
proportionate controls to reduce the likelihood of and mitigate any consequences of
generating or acting upon electronic quotations that may result in erroneous trans-
actions or market disruption such as off-market quotes or trades, fat finger errors,
unintended or uncontrolled trading activity arising from technological failures, flaws
in trading logic, and unexpected or extreme market conditions.

Market Participants should not knowingly generate or attempt to act upon quotations
in a way that is beyond the technical capabilities of the recipient or inconsistent with
advertised protocols. Excessive message rates that are known to approach or breach CONTENTS
the limitations of the platform should be controlled, for instance via the application FOREWORD
of throttling logic and/or circuit breakers. Any identified platform flaws or features
ETHICS
that may risk its continued operation should be escalated appropriately.
GOVERNANCE

The inclusion of a third party into the electronic workflow between those participants EXECUTION
generating and acting upon quotations does not remove either partys obligations. INFORMATION
Market Participants such as aggregators and multibank venues that may perform both SHARING
the function of distributing and acting upon electronic quotations should abide by all RISK AND
relevant principles. COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

36
 RISK AND COMPLIANCE
PRINCIPLES 24-41

SETTLEMENT RISK
PRINCIPLE 35

Market Participants should take prudent measures to

manage and reduce their Settlement Risks, including
prompt resolution measures to minimise disruption to
trading activities.

Settlement fails can expose Market Participants to market and credit risks. Market Par-
ticipants should have policies and procedures designed to properly monitor and limit
settlement exposures to counterparties.

Where applicable, Market Participants should consider payment netting and bilateral
obligation netting to reduce Settlement Risks.

Please also see the Confirmation and Settlement section for further details on this topic.

COMPLIANCE RISK
PRINCIPLE 36

Market Participants should keep a timely, consistent,

and accurate record of their market activity to
facilitate appropriate levels of transparency and
auditability and have processes in place designed
to prevent unauthorised transactions.

Market Participants should keep an accurate and timely record of orders and transac- CONTENTS
tions that have been accepted and triggered/executed, to create an effective audit trail for
FOREWORD
review and to provide transparency to Clients where appropriate.
ETHICS

This record may include, but is not limited to, the following: the date and time, product GOVERNANCE
type, order type (for example, a Stop Loss Order, or an order where price is subject to EXECUTION
last look), quantity, price, trader, and Client identity. Market Participants should apply
INFORMATION
sufficiently granular and consistent time-stamping so that they record both when an SHARING
order is accepted and when it is triggered/executed. RISK AND
COMPLIANCE
Market Participants should have processes in place to support appropriate related data CONFIRMATION
storage and retention of such detail. AND SETTLEMENT

ANNEX 1
Information should be made available to Clients upon request, to provide sufficient
ANNEX 2
transparency regarding their orders and transactions to facilitate informed decisions
ANNEX 3

37
 RISK AND COMPLIANCE
PRINCIPLES 24-41

regarding their market interactions. Information may also be used in resolving trade
disputes. Records should allow Market Participants to effectively monitor their own
compliance with internal policies, as well as their adherence to appropriate market
behaviour standards.

Market Participants should set guidelines that specify personnel authorised to deal in
after-hours or off-premise transactions and the limit and type of transactions permitted. A
prompt written reporting process should be developed and appropriate records should be kept.

PRINCIPLE 37

Market Participants should perform know-your-

customer (KYC) checks on their counterparties
to ascertain that their transactions are not used to
facilitate money laundering, terrorist financing, or
other criminal activities.

Market Participants should have appropriate measures in place to enforce the KYC
principle (see Principle 52 in Confirmation and Settlement section).

Market Participants should have a clear understanding of all Applicable Law on the
prevention of money laundering and terrorist financing.

Market Participants should have internal processes in place to facilitate the prompt
reporting of suspicious activities (for example, to the compliance officer or appropri-
ate public authority, as necessary). Effective training should be provided for relevant
personnel, to raise awareness of the serious nature of these activities, and reporting
obligations, while not revealing their suspicions to the entity or individual suspected of
illegal activities. Such training should be regularly updated to keep pace with the rapidly
CONTENTS
changing methods of money laundering.
FOREWORD

ETHICS

GOVERNANCE
PRINCIPLE 38 EXECUTION

Market Participants should have in place reasonable INFORMATION

SHARING
policies and procedures (or governance and controls) RISK AND
such that trading access, either direct or indirect, is COMPLIANCE

limited to authorised personnel only. CONFIRMATION

AND SETTLEMENT

ANNEX 1
Market Participants should maintain trader or desk mandates, which detail what prod-
ucts each trader is permitted to trade, as well as post-trade surveillance in order to detect ANNEX 2

exceptions from the traders mandate. ANNEX 3

38
 RISK AND COMPLIANCE
PRINCIPLES 24-41

Market Participants should periodically review trading access in order to confirm that
such access, either direct or indirect, is limited to authorised access only.

Market Participants should implement monitoring practices designed to detect the con-
cealment or manipulation of (or the attempt to conceal or manipulate) profit and loss
and/or risk using trades or adjustments that are not for a genuine business purpose.

PRINCIPLE 39

Market Participants should generate a timely and

accurate record of transactions undertaken to enable
effective monitoring and auditability.

At the request of a Client, Market Participants should be able to provide information

regarding the actions taken in handling a specific transaction with such Client. Clients
requesting data from a Market Participant are expected to do so in a reasonable manner,
avoiding spurious or extraneous requests. When requesting data, a Client should outline
the reason for the request. Market Participants should have processes in place to respond
to Client requests for the data.

LEGAL RISK
PRINCIPLE 40

Market Participants should have processes in place

to identify and manage legal risks arising in relation
to their FX Market activities.
CONTENTS

Market Participants should have an understanding of where Applicable Law may affect FOREWORD
the legality or enforceability of rights and obligations with other Market Participants and ETHICS
should take steps to mitigate material legal risks.
GOVERNANCE

EXECUTION
Market Participants should have in place legal agreements with their counterparties,
and should use standard terms and conditions, where appropriate. Market Participants INFORMATION
SHARING
should maintain a record of the agreements they have in place with their counterparties.
RISK AND
COMPLIANCE
When trading, Market Participants should make clear if standard terms are used, and
if changes are proposed. Where changes are substantial, these should be agreed before CONFIRMATION
AND SETTLEMENT
any transaction. Where standard terms do not exist, Market Participants should take
ANNEX 1
more care in the negotiation of these terms. Market Participants should strive to finalise
documentation promptly. ANNEX 2

ANNEX 3

39
 RISK AND COMPLIANCE
PRINCIPLES 24-41

CONSIDERATIONS RELATED TO PRIME BROKERAGE

ACTIVITIES
PRINCIPLE 41

Prime Brokerage Participants should strive to monitor

and control trading permissions and credit provision
in Real Time at all stages of transactions in a manner
consistent with the profile of their activity in the
market to reduce risk to all parties.

Prime Brokerage Participants should strive to develop and/or implement robust control
systems that include the timely allocation, monitoring, amendment, and/or termination
of credit limits and permissions and adequately manage associated risks.

Prime Brokerage Clients should strive for Real-Time monitoring of their available
lines and permitted transaction types and tenors so that only trades within permitted
parameters are executed.
Executing dealers should strive for Real-Time monitoring of designation limits to
validate trade requests prior to execution.
Prime Brokers should have systems reasonably designed to monitor trading activity
and applicable limits upon receiving Give-Up trades.

Prime Brokers should be in a position to accept trades in accordance with terms and
conditions within Prime Brokerage agreements and designation notices.

Prime Brokers should have policies and procedures reasonably designed to address limit
breach exceptions, limit changes, amendments, and novations.

CONTENTS

FOREWORD

ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

40
 CONFIRMATION AND SETTLEMENT
PRINCIPLES 42-55

Confirmation
and Settlement
LEADING PRINCIPLE:
Market Participants are expected to put in place
robust, efficient, transparent, and risk-mitigating
post-trade processes to promote the predictable,
smooth, and timely settlement of transactions in
the FX Market.
The principles below relate to systems and processes surrounding
the confirmation and settlement of FX trades. These principles
should be applied in a manner consistent with the size and com-
plexity of the Market Participants FX Market activities, and the nature
of its engagement in the FX market.

CONTENTS

I. Overarching Principles FOREWORD

ETHICS
PRINCIPLE 42
GOVERNANCE
Market Participants should establish consistency EXECUTION
between their operating practices, their documentation, INFORMATION
and their policies for managing credit and legal risk. SHARING

RISK AND
COMPLIANCE
Operating practices (including processes for confirming and settling trades) should be
CONFIRMATION
consistent with legal and other documentation. Similarly, the use of mitigants for credit AND SETTLEMENT
risk should be consistent with this documentation and with the Market Participants
ANNEX 1
credit risk policies.
ANNEX 2

ANNEX 3

41
 CONFIRMATION AND SETTLEMENT
PRINCIPLES 42-55

PRINCIPLE 43

Market Participants should institute a robust

framework for monitoring and managing capacity in
both normal and peak conditions.

At a minimum, Market Participants should have sufficient technical and operational

capability to support end-to-end FX processing in both normal and peak market condi-
tions without undue impact on the processing timeline.

Market Participants should have defined mechanisms in place to respond to extreme

changes in demand, as required and on a timely basis. Furthermore, clearly defined and
documented capacity and performance management processes should be in place and
reviewed regularly, including with external vendors.

PRINCIPLE 44

Market Participants are encouraged to implement

straight-through automatic transmission of trade data
from their front office systems to their operations systems.

Such transfer of trade data should be facilitated by means of secure interfaces where the
transmitted trade data cannot be changed or deleted during transmission. When trade
data cannot be transmitted automatically from the front office to the operations system,
adequate controls should be in place so that trade data are captured completely and
accurately in the operations system.

CONTENTS
PRINCIPLE 45 FOREWORD

Market Participants should conduct any novations, ETHICS

amendments, and/or cancellations of transactions in GOVERNANCE

a carefully controlled manner. EXECUTION

INFORMATION
SHARING
Processes for novating, amending, or cancelling transactions should be clearly defined
RISK AND
and should provide for the maintenance of appropriate segregation between operations COMPLIANCE
and sales and trading personnel. Reporting on amendments and cancellations should be
CONFIRMATION
made available to management in these areas on a regular basis. AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

42
 CONFIRMATION AND SETTLEMENT
PRINCIPLES 42-55

II. Confirmation Process

PRINCIPLE 46

Market Participants should confirm trades as soon as

practicable, and in a secure and efficient manner.

Market Participants should confirm FX trades as soon as practicable after execution,

amendment, or cancellation. The use of automated trade confirmation matching systems,
when available, is strongly recommended. Market Participants should also implement
operating practices that segregate responsibility for trade confirmation from trade
execution.

Confirmations should be transmitted in a secure manner whenever possible, and elec-

tronic and automated confirmations are encouraged. When available, standardised
message types and industry-agreed templates should be used to confirm FX products.
Trades arranged via an IDB should be confirmed directly between both parties to the
transaction. Market Participants should receive an affirmation from the IDB to assist in
accurately booking trades.

Open communication methods such as e-mail can significantly increase the risk of
fraudulent correspondence or disclosure of Confidential Information to unauthorised
parties. If confirmations are communicated via open communication methods, those
methods should comply with information security standards (and also see Principle 23
in Information Sharing).

If Market Participants bilaterally choose to match trades using front-end electronic deal-
ing platforms in place of exchanging traditional confirmation messages, the exchange of
trade data should be automated and flow straight-through from the front-end system to
operations systems. Strict controls should be in place so that the flow of data between
the two systems is not changed and that data are not deleted or manually amended. Any
agreements between the parties to use electronic dealing platforms for trade matching CONTENTS
rather than exchanging traditional confirmation messages should be documented in the
FOREWORD
legal agreement between the parties.
ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

43
 CONFIRMATION AND SETTLEMENT
PRINCIPLES 42-55

PRINCIPLE 47

Market Participants should review, affirm, and

allocate block transactions as soon as practicable.

Block transaction details should be reviewed and affirmed as soon as practicable follow-
ing execution. Investment managers or others acting as Agent on behalf of multiple
counterparties may undertake block transactions that are subsequently allocated to specific
underlying counterparties. Each underlying counterparty in a block transaction should
be an approved and existing counterparty of the dealer-counterparty prior to allocation.
Each post-allocation transaction should be advised to the counterparty and confirmed as
soon as practicable.

PRINCIPLE 48

Market Participants should identify and resolve confirma-

tion and settlement discrepancies as soon as practicable.

Market Participants that identify discrepancies between received confirmations or al-

leged trades and their own trade records should investigate internally and inform their
counterpart with the aim to resolve such discrepancies as soon as practicable. Market
Participants should also carefully reconcile all alleged trades and inform senders of
unknown confirmations that the recipient cannot allocate to any internal trade record.

Escalation procedures should be established to resolve any unconfirmed or disputed

terms as a matter of urgency, and processes should be in place to detect and report
adverse trends that emerge in the discrepancies.

Escalation procedures should also include notification to trading and other relevant
internal parties so that they know which counterparties may have practices that do not
align with best practices regarding confirmation of trades. Senior management should CONTENTS

receive regular information on the number and latency of unconfirmed deals so that FOREWORD
they can evaluate the level of operational risk being introduced by maintaining dealing ETHICS
relationships with their firms counterparties.
GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

44
 CONFIRMATION AND SETTLEMENT
PRINCIPLES 42-55

PRINCIPLE 49

Market Participants should be aware of the particular

confirmation and processing features specific to life
cycle events of each FX product.

Market Participants should establish clear policies and procedures for the confirmation,
exercise, and settlement of all FX products in which they transact, including those with
unique features. Where applicable, Market Participants should familiarise personnel re-
sponsible for operations with the additional terms and conditions associated with various
FX products and the protocols and processes around life cycle events in order to reduce
operational risk. Market Participants should also be fully versed in the appropriate termi-
nology, contract provisions, and market practices associated with FX products.

III. Netting and Settlement Processes

PRINCIPLE 50

Market Participants should measure and monitor

their Settlement Risk and seek to mitigate that risk
when possible.

Market Participants should develop timely and accurate methods of quantifying their FX
Settlement Risk. The management of each area involved in a participants FX operations
should obtain at least a high-level understanding of the settlement process and the tools
that may be used to mitigate Settlement Risk.

The netting of FX settlements (including the use of automated settlement netting sys-
CONTENTS
tems) is encouraged. Where used by Market Participants, a process of settling payments
FOREWORD
on a net basis should be supported by appropriate bilateral documentation. Such netting
may be bilateral or multilateral. ETHICS

GOVERNANCE
The initial confirmation of trades to be netted should be performed as it would be
EXECUTION
for any other FX transaction. All initial trades should be confirmed before they are
INFORMATION
included in a netting calculation. In the case of bilateral netting, processes for netting SHARING
settlement values used by Market Participants should also include a procedure for
RISK AND
confirming the bilateral net amounts in each currency at a predetermined cut-off point COMPLIANCE
that has been agreed upon with the relevant counterparty. More broadly, settlement
CONFIRMATION
services that reduce Settlement Riskincluding the use of payment-versus-payment AND SETTLEMENT
settlement mechanismsshould be utilised whenever practicable.
ANNEX 1

ANNEX 2

ANNEX 3

45
 CONFIRMATION AND SETTLEMENT
PRINCIPLES 42-55

PRINCIPLE 51

Market Participants should utilise standing settlement

instructions (SSIs).

SSIs for all relevant products and currencies should be in place, where practicable,
for counterparties with whom a Market Participant has a trading relationship. The
responsibility for entering, authenticating, and maintaining SSIs should reside with
personnel clearly segregated from a Market Participants trading and sales personnel
and ideally from those operational personnel responsible for trade settlement. SSIs
should be securely stored and provided to all relevant settlement systems so as to facil-
itate straight-through processing. The use of multiple SSIs with the same counterparty
for a given product and currency is discouraged. Because of the Settlement Risks it
introduces, the use of multiple SSIs with the same counterparty for a given product
and currency should have appropriate controls.

SSIs should be set up with a defined start date and captured and amended (including
audit trail recording) with the appropriate approvals, such as review by at least two
individuals. Counterparties should be notified of changes to SSIs with sufficient time
in advance of their implementation. Changes, notifications, and new SSIs should be
delivered via an authenticated, and standardised, message type whenever possible.

All transactions should be settled in accordance with the SSIs in force on the value
date. Trades that are outstanding at the time SSIs are changed (and have a value date
on or after the start date for the new SSIs) should be reconfirmed prior to settlement
(either bilaterally or through an authenticated message broadcast).

Where SSIs are not available (or existing SSIs are not appropriate to the particu-
lar trade), the alternate settlement instructions to be used should be delivered as
soon as practicable. These instructions should be exchanged via an authenticated
message or other secure means and subsequently verified as part of the trade con-
firmation process.
CONTENTS

FOREWORD

ETHICS

PRINCIPLE 52 GOVERNANCE

EXECUTION
Market Participants should request Direct Payments.
INFORMATION
SHARING
Market Participants should request Direct Payments when conducting FX transactions RISK AND
and recognise that Third-Party Payments may significantly increase operational risk COMPLIANCE
and potentially expose all parties involved to money laundering or other fraudulent CONFIRMATION
activity. Market Participants engaging in Third-Party Payments should have clearly AND SETTLEMENT
formulated policies regarding their use and any such payments should comply with ANNEX 1
such policies.
ANNEX 2

ANNEX 3

46
 CONFIRMATION AND SETTLEMENT
PRINCIPLES 42-55

At a minimum, these policies should require the payer to be furnished with a clear
understanding of the reasons for Third-Party Payments and for risk assessments to
be made in respect of anti-money laundering, counter-terrorism financing, and oth-
er Applicable Law. Arrangements for Third-Party Payments should also be agreed
upon and documented between the counterparties prior to trading. In the event a
Third-Party Payment is requested after a trade has been executed, the same level of
due diligence should be exercised and relevant compliance and risk approvals should
be sought and secured.

PRINCIPLE 53

Market Participants should have adequate systems

in place to allow them to project, monitor, and
manage their intraday and end-of-day funding
requirements to reduce potential complications
during the settlement process.

Market Participants should have clear procedures outlining how each of their ac-
counts used for the settlement of FX transactions is to be funded. Whenever possible,
those Market Participants with nostro accounts should be projecting the balance of
these accounts on a Real-Time basis, including all trades, cancellations, and amend-
ments for each tenor (value date) so that they can diminish the overdraft risk from
the nostro account.

Market Participants should send payment instructions as soon as practicable, taking into
consideration time zone differences as well as instruction receipt cut-off times imposed
by their correspondents. Market Participants should communicate expected receipts (via
standardised message types, when possible) to allow nostro banks to identify and correct
payment errors on a timely basis and aid in the formulation of escalation procedures.
CONTENTS

Market Participants should communicate with their nostro banks to process the can- FOREWORD
cellations and amendments of payment instructions. Market Participants should ETHICS
understand when they can unilaterally cancel or amend payment instructions and should
GOVERNANCE
negotiate with their nostro banks to make these cut-off times as close as possible to the
EXECUTION
start of the settlement cycle in the relevant currencies.
INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

47
 CONFIRMATION AND SETTLEMENT
PRINCIPLES 42-55

IV. Account Reconciliation Processes

PRINCIPLE 54

Market Participants should perform timely account

reconciliation processes.

Market Participants should conduct a regular reconciliation process to reconcile ex-

pected cash flows against actual cash flows on a timely basis. The sooner reconcilia-
tions are performed, the sooner a Market Participant can detect missing or erroneous
entries and know its true account balances so that it can take appropriate actions to
confirm that its accounts are properly funded. Reconciliations should be carried out
by personnel who are not involved in processing transactions that would affect the
balances of accounts held with correspondent banks.

Full reconciliation should occur across nostro accounts as early as possible. To aid in
the full reconciliation of their nostro accounts, Market Participants should be capable
of receiving automated feeds of nostro activity statements and implement automated
nostro reconciliation systems. Market Participants should also have measures in place
to resolve disputes.

Escalation procedures should be in place and initiated to deal with any unreconciled
cash flows and/or unsettled trades.

PRINCIPLE 55

Market Participants should identify settlement

discrepancies and submit compensation claims
in a timely manner.
CONTENTS

Market Participants should establish procedures for detecting non-receipt of pay- FOREWORD
ments, late receipt of payments, incorrect amounts, duplicate payments, and stray ETHICS
payments and for notifying appropriate parties of these occurrences. Escalation pro-
GOVERNANCE
cedures should be in place for liaising with counterparties that fail to make payments
and more broadly for the resolution of any disputes. Escalation should also be aligned EXECUTION

to the commercial risk resulting from fails and disputes. Market Participants that have INFORMATION
SHARING
failed to make a payment on a value date or received a payment in error (for example,
a stray payment or duplicate payment) should arrange for proper value to be applied RISK AND
COMPLIANCE
or pay compensation costs in a timely manner.
CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

48
 CONFIRMATION AND SETTLEMENT
PRINCIPLES 42-55

All instances of non-receipt of payment should be reported immediately to the counter-

partys operations and/or trading units. Market Participants should update their settlement
exposure with the most recent projected cash flow movements. Market Participants may
wish to consider a limited dealing relationship with counterparties that have a history of
settlement problems and continue to fail on their payments.

CONTENTS

FOREWORD

ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

49
 ILLUSTRATIVE EXAMPLES
ANNEX 1

ANNEX 1:

Illustrative Examples
The examples provided in the Global Code are intended to illus-
trate the principles and situations in which the principles could
apply. The examples are highly stylised and are not intended as,
nor should be understood or interpreted as, precise rules or pre-
scriptive or comprehensive guidance. Moreover, the examples are
not intended to provide safe harbour nor are they an exhaustive
list of situations that can arise; in fact, it is expressly understood
that facts and circumstances can and will vary. In some examples,
specific market roles are used to make the example more realistic
but the illustrated behavior applies to all Market Participants.

The examples are grouped under leading principles based on the

key principle that is being illustrated. However, in many cases a
number of leading principles may apply to each illustrated example.
Examples marked by an x illustrate conduct to be avoided; examples
marked by a illustrate conduct that the Global Code aims to
foster and reinforce. The Examples Annex can be expected to be
updated over time as features of the FX Market evolve.

Similar to other sections of the Global Code, these illustrative examples

should be interpreted by Market Participants in a professional and
responsible manner. Market participants are expected to exercise CONTENTS

sound judgement and to act in an ethical and professional manner. FOREWORD

ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

50
 ILLUSTRATIVE EXAMPLES
ANNEX 1

EXECUTION

Market Participants should be clear about the capacities in

which they act. (PRINCIPLE 8)

ATheClient asks a Market Participant to buy EUR/NOK on their behalf in the market.
Market Participant has an agreement with the Client stating it acts as an
Agent and that the Market Participant will add a fee. The Market Participant
executes the order in the market, showing a post trade execution analysis of the
fills and adding the fee.

Market Participants should be clear about the capacities in which they act. In this
example, the parties have made clear in advance the capacities in which they act and that
the Market Participant would add a fee. Specifically, the Market Participant executes the
Clients request in an agent capacity and is transparent about the nature of execution and
the associated cost.

AketClient asks a Market Participant to buy EUR/NOK as a Market Order. The Mar-
Participant and the Client have a Principal-based relationship, stipulated
in their terms and conditions. The Market Participant fills the Clients order in
accordance with the terms agreed, possibly using its own inventory and the
available liquidity in the market.

Market Participants should be clear about the capacities in which they act. In this
example, the parties have made clear in advance the capacities in which they act, by
previously disclosing the terms and conditions under which it will interact with the
Client. Specifically, the Market Participant and the Client, acting as Principals, agree to
execute the transaction. CONTENTS

FOREWORD

ETHICS

GOVERNANCE

Market Participants should handle orders fairly and with EXECUTION

transparency. (PRINCIPLES 9 AND 10) INFORMATION

SHARING

RISK AND
A4 bank receives a large order from a fund (Client) to sell EUR/PLN at the London
p.m. fix. According to their pre-agreed terms and conditions, the bank and
COMPLIANCE

CONFIRMATION
the Client have agreed that the bank will act as Principal and may hedge fixing AND SETTLEMENT
transactions depending on market conditions. The bank hedges some of the ANNEX 1
order amount before the fixing window since it judges that the five-minute fixing ANNEX 2
window is too short to clear such a large amount without affecting the market
ANNEX 3

51
 ILLUSTRATIVE EXAMPLES
ANNEX 1

rate to the Clients disadvantage. The bank also keeps some of the risk on its
book and does not trade the full amount in the market, therefore lessening the
market impact of the Clients order in the fixing, with the intention of benefiting
the Client.

Market Participants are expected to handle orders with fairness and transparency. In
this example, the Client and the bank have agreed that the latter will act as Principal.
The bank executes the transaction in a manner that benefits the Client by lessening the
market impact of the Clients order on the market.

x A Market Participant has orders from several Clients to buy USD/ZAR. The
Market Participant has disclosed to Clients its policy that electronic orders
are processed in the order in which they are received from Clients. The Market
Participant fills first an order of another customer even though that order was
received after other orders.

Market Participants should make Clients aware of factors that affect how orders are
handled and transacted, including whether orders are aggregated or time prioritised,
and should have clear standards in place that strive for a fair and transparent outcome
for the Client. In this example, the Market Participant has made the Client aware of
its order-processing policy, but it violates that policy when it executes the orders in a
non-sequential way.

x A Client calls a Market Participant to execute a series of trades, stating that it

is relying on the agency agreement they have in place. The agency agreement
includes a pre-negotiated transaction fee. While executing the trades, the exe-
cution desk of the Market Participant adds an additional undisclosed spread to
every trade it executes, resulting in the Client paying above the pre-negotiated
transaction fee.
CONTENTS
A Market Participant handling Client orders in an Agent role should be transparent with FOREWORD
its Clients about its terms and conditions, which clearly set out fees and commissions.
ETHICS
In this example, the Market Participant charges a fee in excess of the pre-negotiated fee
GOVERNANCE
and does not disclose it to the Client.
EXECUTION

INFORMATION
SHARING
Dealer A tells Voice Broker B that he has a large amount to execute at the fix
x RISK AND
and wants some help establishing a favourable rate to its benefit. Broker B then
COMPLIANCE
informs Dealer C who has a similar order and they all agree to combine their
CONFIRMATION
orders so as to make a greater impact in or before the fix window. AND SETTLEMENT

Market Participants should handle orders fairly and with transparency, should not disclose ANNEX 1

confidential Client trading information (Principle 19), and should behave in an ethical and ANNEX 2
professional manner (Principles 1 and 2). The collusion illustrated in this example to in- ANNEX 3

52
 ILLUSTRATIVE EXAMPLES
ANNEX 1

tentionally influence a benchmark fixing rate is neither ethical nor professional. It divulges
information about Client trading activity to an external party and is non-competitive be-
haviour that undermines the fair and effective functioning of the FX Market.

A11:00
corporate treasury calls a bank to buy a large amount of GBP/SEK at the
fixing tomorrow morning, New York time. The Client and the bank agree
that the bank will act as Principal and may hedge the transaction. Judging the
liquidity around 11:00 not good enough to absorb the order, the bank starts to
buy small parcels of GBP/SEK during the morning to limit the market impact
of the transaction. The bank fills the Clients order at 11:00 at the fixing price,
using its inventory.

Market Participants should handle orders fairly and transparently. In this example, the
Market Participant strives for a fair outcome for the Client.

x A Client instructs a Market Participant to buy 5 billion USD/JPY at the 4 p.m.

fix as part of a cross-border merger and acquisition transaction. After receiv-
ing this instruction, but before 4 p.m., the Market Participant buys 300 million
USD/JPY for its own book, and not part of a risk management strategy for the
transaction. After the 4 p.m. fix, the Market Participant sells 300m USD/JPY for
its own book, with the sole intent of taking advantage of the price movement
caused by the Client order.

Market Participants should handle orders fairly and transparently, and the Confidential
Information obtained from a Client is to be used only for the specific purpose for which
it was given. In this example, the Market Participant instead uses its knowledge of the
Client order and the expected market impact of the Fixing Order to gain profit for its
own book, potentially disadvantaging the Client.

CONTENTS

A bank is anticipating an order related to a potential merger and acquisition FOREWORD

transaction on behalf of a Client that involves selling a very large amount of a ETHICS
specific currency. The bank recognises that this transaction could have a sizeable GOVERNANCE
impact on the market and therefore proactively engages the Client to discuss a
EXECUTION
potential execution strategy, including but not limited to the matching of internal
INFORMATION
flows, the timing of the execution, the use of algorithms, and Pre-Hedging. The SHARING
bank transacts in anticipation of the order in agreement with the Client and with
RISK AND
the intent to manage the risk associated with the anticipated transaction and to COMPLIANCE
seek a better outcome for the Client. CONFIRMATION
AND SETTLEMENT
Market Participants handling orders that have the potential to have sizable market im-
ANNEX 1
pact should do so with care and attention. The order described in this example is large
ANNEX 2

ANNEX 3

53
 ILLUSTRATIVE EXAMPLES
ANNEX 1

and could have sizable market impact and the parties involved take several steps to
appropriately monitor and execute the order.

A Market Participant should only Pre-Hedge Client orders

when acting as a Principal, and should do so fairly and
with transparency. (PRINCIPLE 11)

AHedge
bank has disclosed to a Client that the bank acts as Principal and may Pre-
the Clients orders. The bank has a large Stop Loss buy order for the
Client, which it anticipates might be triggered. The bank expects that there are
many similar orders in the market at this important technical level and recog-
nises the risk for substantial slippage during execution. The bank decides to
Pre-Hedge part of the order and starts buying in advance without any intent
to push up the market price. However, the market spikes above the Stop Loss
level due to the buying by other Market Participants which is triggered when the
market price hits the technical level. The order is triggered but, as a result of
Pre-Hedging, the bank is able to provide an execution price close to the Stop
Loss level.

Market Participants should only Pre-Hedge Client orders when acting as Principal and
when the practice is used with the intention to benefit the Client. Stop Loss Orders are
conditional on breaching a specific trigger level, and in many cases orders are placed
at significant levels in the market with the potential for substantial slippage when the
level is reached. In this example, the bank has utilised Pre-Hedging to build up inven-
tory in advance. The bank is better positioned than it would otherwise be, had it not
Pre-Hedged, to enable the bank to protect the Client from slippage and thus benefiting
the Client.
CONTENTS

FOREWORD
A Market Participant has disclosed to a Client that the Market Participant acts
as Principal and may pre-hedge the Clients anticipated order. The Client asks
ETHICS

the Market Participant for a bid price for a large amount of USD/CAD during GOVERNANCE

a non-liquid period of the day. Due to liquidity conditions and the size of the EXECUTION

anticipated order, the Market Participant expects that it may need to quote a INFORMATION
SHARING
significantly lower bid than is shown on the interdealer broker (IDB) screen. But
before determining its quote, and in an effort to improve its price to the Cli- RISK AND
COMPLIANCE
ent, the Market Participant tests the market liquidity by selling a small amount
CONFIRMATION
through the IDB. The Market Participant quotes the Client a bid price for the full AND SETTLEMENT
amount, taking into account, for the Clients benefit, the amount already sold.
ANNEX 1

ANNEX 2

ANNEX 3

54
 ILLUSTRATIVE EXAMPLES
ANNEX 1

Market participants should only Pre-Hedge anticipated Client orders when acting as a
Principal and in a manner not meant to disadvantage the Client. In this example, the
Market Participant has Pre-Hedged part of the order to manage the potential risk associ-
ated with the anticipated order and in a way intended to benefit the Client, specifically by
taking into account the pricing benefit of the Pre-Hedged amount for the Client.

Market Participants should not request transactions, create

orders, or provide prices with the intent of disrupting market
functioning or hindering price discovery. (PRINCIPLE 12)

x A Market Participant wishes to sell a large amount of USD/MXN. Before doing

so, the Market Participant executes a number of small, successive purchases
of USD/MXN on a widely viewed E-Trading Platform with the intention of moving
the market price higher and inducing other Market Participants to buy USD.
The Market Participant then executes the original large sell order in one or more
E-Trading Platforms at a higher price.

Market Participants should not request transactions or create orders with the intention
of disrupting market functioning or hindering the price discovery process, including
undertaking actions designed to result in a false impression of market price, depth, or li-
quidity. This example illustrates a strategy intended to cause artificial price movements.
While Market Participants often break large trades into smaller transactions to mitigate
the impact of a transaction, in this case the small transactions are intended to cause an
artificial price movement. The Market Participant plans to sell a large quantity of currency
but uses small buy trades to create a false impression of market price.

A Market Participant wishes to sell a large amount of USD/MXN. It repeatedly

x CONTENTS
places small offers to sell on a widely viewed E-Trading Platform. The Market
Participant chooses to use another dealing code of the same institution on the FOREWORD
same E-Trading Platform in order to lift these successive higher offers with the ETHICS
intention of misleading the market. GOVERNANCE

EXECUTION
This is an extension of the previous example. The behaviour gives the false impression
that multiple counterparties are participating in a rally whereas they are actually from INFORMATION
SHARING
the same institution. The use of such strategies should be avoided.
RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

55
 ILLUSTRATIVE EXAMPLES
ANNEX 1

x A Client stands to gain by moving the market higher into the 4:00 p.m. fix for a
particular currency pair. They call a bank at 3:45 p.m. and place a large Fixing
Order and then instruct the bank to buy the amount as quickly as possible in
the first minute of the fix calculation window.

Market Participants should not request transactions or create orders with the intention
of disrupting market functioning or hindering the price discovery process, including
adopting strategies designed to result in a false impression of market price, depth, or
liquidity. The Clients request in this example is intended to result in a false impression
of market price and depth.

x A hedge fund is long an exotic Euro put. The currency has been weakening
towards the options knock-in level during the New York session. Knowing that
liquidity will be lower during the Asian session, due to a major holiday, and
intending to knock in the option, the hedge fund leaves a large Euro Stop Loss
sell order for the Asian open with bank A at a price just above the knock-in
level. At the same time, the hedge fund leaves a limit buy order with bank B for
the same amount of Euros but at a level just below the knock-in level. Neither
bank A nor bank B is aware that the hedge fund is long the exotic Euro put.

Market Participants should not request transactions or create orders with the intention of
creating artificial price movements. In this example, the hedge fund has sought to profit
(to knock-in the option) by leaving orders designed to cause artificial price movements
inconsistent with prevailing market conditions.

x An IDB advertises a price without any instruction from a broker-dealer, dealer

bank, or other financial institution. When a trader attempts to hit or lift the
price, the IDB advises the trader that the quote has been traded by another
party or has been withdrawn. CONTENTS

FOREWORD
Market Participants should not provide prices with the intent to hinder the price discov-
ery process, including strategies designed to result in a false impression of market price, ETHICS

depth or liquidity. The practice illustrated in the example, sometimes known as flying a GOVERNANCE
price, is a pricing strategy that intentionally gives the false impression of more liquidity EXECUTION
than is actually available. It may occur on an IDB operating by voice or electronically
INFORMATION
or on an E-Trading Platform that falsely attributes its own pricing to another party. This SHARING
behavior is similarly inappropriate for other types of Market Participants.
RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

56
 ILLUSTRATIVE EXAMPLES
ANNEX 1

Market Participants should understand how reference prices,

including highs and lows, are established in connection with
their transactions and/or orders. (PRINCIPLE 13)

AAfter
market maker discloses to a Client how reference prices will be established.
a sharp downward move in USD/JPY, the market maker executes the
Clients Stop Loss Order using a reference rate in accordance with its own policy
and its prior disclosure.

Market Participants should understand how reference prices are established in connec-
tion with their transactions and orders. In this example, the market maker discloses to
the Client how reference prices will be established.

Mark Up should be fair and reasonable. (PRINCIPLE 14)

x A bank receives a Client Stop Loss sell order for GBP/USD at a certain level.
When that level is traded in the market, the bank executes the Stop Loss order
with some slippage. However, the bank fills the Client at a slightly lower rate
after taking Mark Up and without having previously disclosed to the Client that
the all-in price for executing a Stop Loss was subject to Mark Up.

Mark Up should be fair and reasonable, and Market Participants should promote trans-
parency by disclosing to Clients that that their final transaction price may include Mark
Up and that it may impact the pricing and execution of orders triggered at a specific
level. In this example, the bank has not disclosed to the Client how Mark Up will affect
the all-in price for the order.
CONTENTS

FOREWORD

ETHICS
x A bank charges a corporate higher markup than other corporates of the same
size, credit risk, and relationship, exploiting the corporates relative lack of so- GOVERNANCE

phistication in understanding and challenging the pricing of its bank. EXECUTION

INFORMATION
Mark Up should be fair and reasonable and can reflect a number of considerations, SHARING
which might include risks taken, costs incurred, and services rendered to a particular
RISK AND
Client, factors related to the specific transaction and to the broader Client relationship. COMPLIANCE
The application of Mark Up in this example is not fair and reasonable as it discriminates
CONFIRMATION
between Clients based only on their level of sophistication. In the example below, the AND SETTLEMENT
different Mark Up charged to each of the Clients is motivated by differences in the ANNEX 1
broader Client relationshipin this case, the volume of business.
ANNEX 2

ANNEX 3

57
 ILLUSTRATIVE EXAMPLES
ANNEX 1

AUpsbank charges corporates of similar size and credit standing different Mark
because the broader Client relationship differs. For example, the volume of
business these Clients transact with the bank is of very different magnitudes.

Market Participants should identify and resolve trade

discrepancies as soon as practicable to contribute to a
well-functioning FX Market. (PRINCIPLE 15)

A hedge fund executes a trade through an executing Dealer for Give-Up to its
x
Prime Broker (PB). The terms of the trade provided by the hedge fund to its PB
do not match those provided by the executing Dealer. When notified by the PB
that there is a discrepancy in the trade details, the hedge fund responds that
the executing Dealer has made a mistake and that the PB should resolve the
trade discrepancy with the executing Dealer.

Market Participants should resolve discrepancies as soon as practicable. In particu-

lar, Prime Brokerage Clients and executing dealers are responsible for resolving trade
discrepancies to achieve timely amendments and matching of trade terms through the
Prime Broker. In this example, the hedge fund places responsibility for resolving the
discrepancy on the Prime Broker. However, it should have contacted the Dealer directly
to resolve the discrepancy because the identities of the counterparties are known by the
hedge fund and the executing dealer.

APrime
Client uses an E-Trading Platform to execute FX trades in the name of its
Broker. The E-Trading Platforms rules do not allow the full name of the
Executing Dealer whose orders match with the Clients orders to be revealed to
CONTENTS
the Client. The E-Trading Platform confirms a trade at a price that differs from
the Clients records. The E-Trading Platform and Prime Broker work together FOREWORD

with the Client to enable prompt resolution of the trade discrepancy. Specifi- ETHICS

cally, the E-Trading Platform contacts the executing dealer while maintaining GOVERNANCE
confidentiality of the Client. EXECUTION

Market Participants should resolve trade discrepancies as soon as practicable and protect INFORMATION
SHARING
Confidential Information, as outlined in Principle 20. Where anonymous market access
is provided, the access provider should assist in the resolution of trade discrepancies. In RISK AND
COMPLIANCE
this example, while the Client and executing dealer are responsible for resolving the trade
CONFIRMATION
discrepancy, they do need help from the Prime Broker and the E-Trading Platform because AND SETTLEMENT
the Client and Executing Dealer do not know, and should not know, each others name.
ANNEX 1

ANNEX 2

ANNEX 3

58
 ILLUSTRATIVE EXAMPLES
ANNEX 1

Market Participants employing last look should be transparent

regarding its use and provide appropriate disclosures to
Clients. (PRINCIPLE 17)

x A Market Participant sends a trade request to an anonymous liquidity provider

to buy 1 million EUR/USD at a price of 13 via an FX E-Trading Platform while the
displayed price is 12/13. This trade request is understood to be subject to a last
look window before it is accepted and confirmed by the anonymous liquidity
provider. During this window, the liquidity provider places buy orders at levels
below the 13 price. If these buy orders are filled, the liquidity provider confirms
and fills the Market Participants trade request, but when these orders are not
filled, neither is the Market Participants trade request.

Market Participants should only use last look as a risk control mechanism to verify
factors such as validity and price. In this example, the liquidity provider misuses the
information contained in the Clients trade request to determine if a profit can be made
and has no intent to fill the trade request unless a profit is possible.

Aliquidity
Client sends trade requests that are subject to a last look window, and its
provider has disclosed for what purposes last look may be used. The
Client reviews data related to its average fill ratios on such transactions. The
data provided suggests that its average fill ratio is lower than expected and the
Client follows up with its liquidity provider to discuss reasons for this.

Market participants employing last look should be transparent regarding its use and
provide appropriate disclosures to Clients. It is also good practice to be available to
engage in a dialogue with Clients regarding how their orders have been handled. In
this example, the Market Participants transparency has enabled the Client to make
an informed decision about how its orders are handled, and fosters dialogue between CONTENTS

the two parties. FOREWORD

ETHICS

GOVERNANCE

EXECUTION

Market Participants providing algorithmic trading or aggregation INFORMATION

SHARING
services to Clients should provide adequate disclosure regarding
RISK AND
how they operate. (PRINCIPLE 18) COMPLIANCE

CONFIRMATION
AND SETTLEMENT

x An aggregator preferentially routes an order to an E-Trading Platform that pro-

vides brokerage rebates. The provider of the aggregator does not disclose to
ANNEX 1

ANNEX 2
Clients that brokerage rebates affect routing preferences.
ANNEX 3

59
 ILLUSTRATIVE EXAMPLES
ANNEX 1

Market Participants providing aggregation services to Clients should provide adequate

disclosure regarding how they operate, in particular general information regarding how
routing preferences may be determined. In this example, the provider of the aggregator
service has not disclosed a factor that determines routing preferences.

INFORMATION SHARING

Market Participants should identify and protect Confidential

Information. (PRINCIPLES 19 AND 20)

x Asset manager to bank market maker: Bank ABC just called me with an Axe to
buy EUR/SEK. Are you seeing buying as well?

Market Participants should not disclose or solicit Confidential Information, including

information about Clients Axes or trading activity. In the example above, the asset
manager discloses and solicits Confidential Information, in this case another banks Axe.
In the example below, the asset manager refrains from soliciting Confidential Information.

Bank ABC to Asset manager: We have an Axe in EUR/SEK Spot. Do you have any
interest? Asset manager to bank market maker: Thanks for calling but we dont
have interest in EUR/SEK today.

x Hedge fund to bank market maker: Are you long Sterling? CONTENTS

FOREWORD
Market Participants should not solicit Confidential Information, including information
on current positioning or trading activity, without a valid reason to do so. In the accept- ETHICS

able example below, the hedge fund asks for market views and not specific positioning. GOVERNANCE

EXECUTION

Hedge fund to bank market maker: What do you think of Sterling here? INFORMATION
SHARING

RISK AND
COMPLIANCE
A bank has been asked by a Client to provide a quote for 150 million USD/MXN.
x CONFIRMATION
The bank does not actively market make in this currency pair. The bank market AND SETTLEMENT
maker calls another bank market maker: Im being asked to quote a two-way
ANNEX 1
price for 150 million USD/MXN. Can you show me your USD/MXN pricing matrix
ANNEX 2
so that I can get a feel for the spread to quote?
ANNEX 3

60
 ILLUSTRATIVE EXAMPLES
ANNEX 1

Market Participants should not disclose or solicit Confidential Information, including

information about Clients trading activity. In the example above, the bank market maker
discloses and solicits Confidential Informationin this case, the Client interest and the
proprietary spread matrix information, respectively. In the example below, the bank
requests only information pertinent to their needs.

AMXN.
bank has been asked by a Client to provide a quote for 150 million in USD/
The bank does not have a franchise in this pair, so their market maker
calls another bank market maker: Can you give me a two-way price for 150
million in USD/MXN?

A bank has implemented an institution-wide policy designating trade recom-

x mendations produced by the FX Research Department as confidential until
published to all Clients simultaneously. Bank FX research analyst to hedge fund:
Our view on USD/JPY has shifted in line with our new central bank rate forecasts
and Im publishing a new bullish trade recommendation later today.

Market Participants should not disclose Confidential Information. In this example, the
analyst has disclosed Designated Confidential Informationits trade recommenda-
tionto an external party prior to publication. In the example below, the FX research
analyst discloses research after it has been published.

Bank FX research analyst to hedge fund: Im calling to check that youve

received our bullish USD/JPY trade recommendation published an hour ago
in line with our new central bank rate forecasts.

A hedge fund manager attends a portfolio review with a large Client. At the
x
review, the manager learns that the Client will soon be shifting part of its cur-
rency allocation into another currency pair. The manager is asked for advice,
but not awarded the allocation mandate. Upon leaving the meeting, the manager CONTENTS
makes a call to his own trading desk to inform them of the impending trade. FOREWORD

Market Participants should not disclose Confidential Information except to those indi- ETHICS

viduals who have a valid reason to receive such information. In particular, information GOVERNANCE
obtained from a Client is to be used only for the specific purpose for which it was given. EXECUTION
In this example, planned currency reallocation is Confidential Information and has been
INFORMATION
disclosed to the hedge fund manager for advice only. It should not be disclosed to the SHARING
trading desk.
RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

61
 ILLUSTRATIVE EXAMPLES
ANNEX 1

A fund asks a bank to work a large buy order of EUR/PLN for a fixing. Immedi-
x
ately after the call, the bank contacts a different Client hedge fund and says, I
have a large buy order of EUR/PLN to work ahead of the fixing for a Client. I think
this may move the market upwards in the next 20 minutes, and I can work some
flow for you as well.

Past, present, and future Client trading activity is Confidential Information that should
not be disclosed to other Market Participants.

Market Participants should communicate in a manner that is

clear, accurate, professional, and not misleading. (PRINCIPLE 21)

An asset manager calls three banks and says, Can I get a price in 50 million
x
GBP/USD, please? This is my full amount. The asset manager buys 50 million
GBP from each of the three banks for a total of 150 million GBP.

Market Participants should communicate in a manner that is clear, accurate, professional,

and not misleading. In this example, the asset manager deliberately misleads the banks
in order to potentially secure better pricing. If asked, the asset manager could decline to
disclose whether its request to transact is for the full amount.

A sell-side institution has a large amount of an illiquid currency pair to sell. A

x
trader at the institution contacts several Market Participants, saying that he is
hearing of a very large buyer in this currency, when this is in fact not the case.

Market Participants should communicate in a manner that is not misleading. In this ex-
ample, the trader communicates false information with the intent of moving the market CONTENTS
in his own interests. FOREWORD

ETHICS

GOVERNANCE

EXECUTION
Market Participants should communicate Market Colour INFORMATION
appropriately. (PRINCIPLE 22) SHARING

RISK AND
COMPLIANCE

Aandcorporate Client has left a 24-hour call level for the yen with a counterparty
the call level has just been breached. Bank salesperson to corporate Client:
CONFIRMATION
AND SETTLEMENT

The yen just traded through your call level. The market has dropped 200 ticks in ANNEX 1

the last 15 minutes, there has been large selling across a variety of names, and ANNEX 2
prices have been gapping. The market continues to be better offered, but the ANNEX 3

62
 ILLUSTRATIVE EXAMPLES
ANNEX 1

move seems to be limited to just the yen. We dont know the trigger but there
has been some chatter on the Internet about an earthquake, but it has not been
confirmed on any of the main news channels.

Market Participants should communicate Market Colour appropriately and without com-
promising Confidential Information. In this example, the salesperson shares information
about recent market developments, with the flow having been sufficiently aggregated
and the information from a third party attributed clearly (Principle 21).

Bank salesperson to hedge fund: Weve seen large NZD/USD demand from XYZ
x
(where XYZ is a code name for a specific Client) this morning.

Market Participants should communicate Market Colour appropriately, sharing flow

information on an anonymised and aggregated basis only. In the example above, the
information reveals the identity of a specific Client. In the example below, the commu-
nication is aggregated in terms of Client category so that the Client cannot be identified.

Bank salesperson to hedge fund: Weve seen large NZD/USD demand from
Real Money names this morning.

x Asset manager to bank market maker: I hear that youve been a big buyer of
GBP/USD. Is it for the same UK corporate(s) again?

Market Participants should not solicit Confidential Information, including the trading
activity of a specific Client. Market Colour should be anonymised and aggregated so as
not reveal the flows related to a specific Client. In the example above, the asset manager
has solicited Confidential Information. In the example below, the asset manager has
solicited general Market Colour.

Asset manager to bank market maker: Can you give me some colour around the
100 point rally in GBP/USD in the past hour?
CONTENTS

FOREWORD

ETHICS

Market maker to hedge fund: Yen liquidity has deteriorated. Just now it took GOVERNANCE
x
me 15 ticks to cover my sale of 100 million USD/JPY to a Japanese automaker. EXECUTION

INFORMATION
Market Participants should communicate Market Colour appropriately, sharing flow SHARING
information on an anonymised and aggregated basis only. In the example above, the RISK AND
communication refers to a specific recent trade and possibly reveals the identity of a COMPLIANCE
specific Client. In the acceptable example below, the reference to the timing of execution CONFIRMATION
is broad and the type of Client is generalised. AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

63
 ILLUSTRATIVE EXAMPLES
ANNEX 1

Market maker to hedge fund: Yen liquidity has deteriorated. Last week I was
able to trade 100 million USD/JPY for only 3 ticks, but today it took 15 ticks and
twice as long.

Market Participants should have clear guidance on approved

modes and channels of communication. (PRINCIPLE 23)

x A sales person has a number of filled orders to confirm to the customer but has
left the office early. Not having access to a recorded line, he subsequently texts
his confirmations from his own unrecorded personal cell phone to the Client.

It is recommended that communication channels be recorded, particularly when being

used to transact. In the example above, the sales person confirms transactions on an
unrecorded line. In the example below, the sales person strives to find a way to have the
transactions confirmed via recorded means.

Ahassales person has a number of filled orders to confirm to the customer but
left the office early. Not having access to a recorded line, the sales person
contacts his office colleagues, who then contact the customer to confirm the
transactions using recorded means.

RISK MANAGEMENT AND

COMPLIANCE CONTENTS

FOREWORD

ETHICS

GOVERNANCE
Market Participants should have practices in place to limit, EXECUTION
monitor, and control the risks related to their FX Market INFORMATION
trading activity. (PRINCIPLE 27) SHARING

RISK AND
COMPLIANCE
A Client of a bank accesses FX Market liquidity only through the E-Trading Plat- CONFIRMATION
x AND SETTLEMENT
form offered by the sales/trading business of the bank and has no other source
of liquidity. The Client has not evaluated the risks of relying on just one source ANNEX 1

of liquidity. In response to an unexpected market event, the bank adjusts the ANNEX 2
liquidity provided through its E-Trading Platform, which has the effect of severely ANNEX 3

64
 ILLUSTRATIVE EXAMPLES
ANNEX 1

impacting the ability of the Client to manage its FX positions. As the Client has
no contingency in place to access the market (including relationship with the
voice sales/trading business), the Clients ability to trade is compromised.

Market Participants should have practices in place to limit, monitor, and control the risks
related to their FX trading. In particular, Market Participants should be aware of the
risks associated with reliance on a single source of liquidity and incorporate contingency
plans as appropriate. In this example, the Client is unaware that its reliance on a single
source of liquidity poses risks to its business and has no contingency plan in place,
which severely limits its ability to manage its FX positions.

Achannels
Market Participant has a significant Client franchise and maintains several
to access liquidity, including two FX Prime Brokers and some bilateral
agreements. For operational efficiency, the Market Participant routes the ma-
jority, but not all, of its flows through one of its Prime Brokers but has a smaller
but representative part of its portfolio channelled regularly to the other Prime
Broker and to its bilateral relationships.

Market Participants should be aware of the risks associated with reliance on a single
source of liquidity and incorporate contingency plans as appropriate. In this example,
the Market Participant has opted to maintain and use several liquidity sources as appro-
priate to the nature of its business.

x A small proprietary trading fund copies the risk checks that are those specified
by its Prime Broker to stay within prudent limits, including Net Open Position
(NOP) and Daily Settlement Limits (DSL). The funds trading algorithm has a
programming bug that causes a runaway algorithm that systematically loses
money. The fund discovers that, despite their limit checks, the fund incurs losses
that threaten the survival of the fund.
CONTENTS
Market Participants should have practices in place to limit, monitor, and control the risks
FOREWORD
related to their FX trading. In this example, the trading fund had inadequate processes in
place to identify and manage operational risks specific to its business. The limit checks ETHICS

failed to alert the fund to a decline in position value. In the extreme, an algorithm that GOVERNANCE
systematically loses, rather than earns, money can still be wholly within NOP and DSL EXECUTION
limits because the position will fall in value.
INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

65
 ILLUSTRATIVE EXAMPLES
ANNEX 1

Market Participants should have Business Continuity Plans

(BCPS). (PRINCIPLE 33)

x A Market Participant uses a backup site in the same region and relies on per-
sonnel in the same area as its primary site. The Market Participant has not
developed a Business Continuity Plan appropriate to the nature, scale, and
complexity of its business. During a civil emergency, the Market Participant
finds that it is unable to access either the primary or the backup site because
the two sites share the same telecommunications path. It also finds that it cannot
reach personnel essential to its business.

Market Participants should have business continuity plans in place that are appropri-
ate to the nature, scale, and complexity of their business and that can be implemented
quickly and effectively. In this example, despite maintaining a primary and a backup
site, the Market Participant did not have a business continuity plan that was robust to
the disruption. In the two examples below, the Market Participant has made a business
continuity plan that is, in each case, appropriate given the nature, scale, and complexity
of its operations.

Awhose
Market Participant selects a backup site that is geographically distant, and
infrastructure can be controlled by personnel in the distant location.

Aand,Market Participant decides that it will not maintain a backup data centre
in the event that its data centre is unavailable, will reduce or eliminate
its positions by telephoning one of the market makers with whom it has a
relationship and trade by voice only until its data centre is available again.

CONTENTS

FOREWORD
Prime Brokerage Participants should strive to monitor and
ETHICS
control trading permissions and credit provision in Real Time
at all stages of transactions in a manner consistent with GOVERNANCE

the profile of their activity in the market to reduce risk to EXECUTION

all parties. (PRINCIPLE 41) INFORMATION

SHARING

RISK AND
COMPLIANCE
A Prime Brokerage Client is provided with exposure limits for each of its executing
x CONFIRMATION
dealers under its PB agreement. The Client assumes that the executing dealers
AND SETTLEMENT
are monitoring these limits and does not incorporate pre-trade compliance-
ANNEX 1
checking procedures within its internal processes. The PB Client trades on behalf
of a number of underlying accounts in a bulk ticket, providing the executing ANNEX 2

ANNEX 3

66
 ILLUSTRATIVE EXAMPLES
ANNEX 1

Dealer with the PB account portion of the deal post-trade. The Client breaches
its PB exposure limit with the executing dealers and is only made aware of the
breach by the executing Dealer at the point of providing the breakdown.

Prime Brokerage Clients should strive to monitor their applicable limits as specified in
their Prime Brokerage agreement. This is especially important where an executing Dealer
is unaware of the precise account breakdown on a bulk transaction. Clients should have
pre-trade compliance-monitoring procedures in place such that only trades that fit within
the designation limits are requested of executing dealers.

An executing broker notices a Client repeatedly breaching its authorised limits

thanks to routine, embedded controls, and informs the Client, with a warning.

Prime Brokerage Participants should strive to monitor and control credit provision in
Real Time. While this example notes a negative scenario (breaching of authorised lim-
its), it is a positive example as the executing broker displays appropriate monitoring
of risk controls to detect repeated limit breaches and appropriate information sharing
among the affected parties.

CONFIRMATION AND SETTLEMENT

Market Participants should confirm trades as soon as practicable,

and in a secure and efficient manner. (PRINCIPLE 46)

CONTENTS
A Client executes a transaction in spot USD/JPY on a single-bank platform and
is immediately provided with a trade confirmation via the banks platform. After
FOREWORD

ETHICS
having checked the trade details received from the bank, the Client is able to
immediately send a confirmation message for the trade to the bank. GOVERNANCE

EXECUTION
Market Participants should confirm trades as soon as possible, and in a secure and
INFORMATION
efficient manner. In this example, the banks straight-through-processing and initiation SHARING
of the confirmation process results in the Client being able to send a corresponding con-
RISK AND
firmation message within a short time frame. COMPLIANCE

CONFIRMATION
AND SETTLEMENT

Aphone.
local Market Participant executes an FX transaction with its parent entity via
Both the local entity and its parent confirm the deal directly via a com-
ANNEX 1

ANNEX 2
mon secured electronic platform.
ANNEX 3

67
 ILLUSTRATIVE EXAMPLES
ANNEX 1

Market Participants should confirm trades as soon as possible, and in a secure and efficient
manner. In this example, both entities use a common secured electronic platform to confirm
the dealan alternative to marketwide automated trade confirmation matching systems.

Market Participants should review, affirm, and allocate block

transactions as soon as practicable. (PRINCIPLE 47)

A corporate treasurer has a busy morning in meetings. There are ten trades
x
to do, including some block trades with sub-allocations for the pension fund.
The treasurer calls a counterparty by phone, completes all ten trades with
just enough credit, and waits to input all of the trades into the system until
after lunch.

Block transaction details should be reviewed and affirmed as soon as practicable fol-
lowing execution. In this example, the time lag between execution and input does not
comply with this principle and can lead to delays in confirming.

CONTENTS

FOREWORD

ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

68
 GLOSSARY OF TERMS
ANNEX 2

ANNEX 2:

Glossary of Terms
Agent: A Market Participant that executes orders on behalf of its Clients pursuant to the
Client mandate, and without taking on market risk in connection with the order.

Applicable Law: With respect to a Market Participant, the laws, rules, and regulations
applicable to it and the FX Market in each jurisdiction in which it does business.

Axe: An interest that a Market Participant might have to transact in a given product or
currency pair at a price that may be better than the prevailing market rate.

Client: A Market Participant requesting transactions and activity from, or via, other
Market Participants that provide market making or other trade execution services
in the FX Market. A Market Participant can act as a Client in some instances while
making markets in other instances.

Compliance Risk: Risk of legal or regulatory sanctions, material financial loss, or loss
to reputation as a result of a Market Participants failure to comply with laws,
regulations, rules, industry standards, and codes of conduct applicable to its FX
activities. Compliance concerns include observing proper standards of market con-
duct, managing conflict of interest, treating customers fairly, and taking measures
for the prevention of money laundering and terrorist financing.

Confidential Information: Information that is to be treated as confidential, including

FX Trading Information and Designated Confidential Information.

Corporate Treasury Centre: A Market Participant within a group of mainly non-

financial companies that enters into external (non-Group) transactions as a Client
(unless it explicitly declares otherwise) either on its own account or on behalf of
CONTENTS
the parent companies, subsidiaries, branches, affiliates, or joint ventures of the
FOREWORD
Group it represents.
ETHICS
Designated Confidential Information: Confidential, proprietary, and other information
GOVERNANCE
for which Market Participants may agree to a higher standard of non-disclosure,
which, at their discretion, may be formalised in a written non-disclosure or similar EXECUTION
confidentiality agreement. INFORMATION
SHARING
Direct Payment: The transfer of funds in settlement of an FX transaction to the account
RISK AND
of the counterparty to the transaction. COMPLIANCE

E-Trading Platform: Any system that allows Market Participants to execute trades CONFIRMATION
AND SETTLEMENT
electronically in the FX Market.
ANNEX 1

ANNEX 2

ANNEX 3

69
 GLOSSARY OF TERMS
ANNEX 2

Electronic Trading Activities: These activities may include operating an E-Trading

Platform, making and/or taking prices on an E-Trading Platform, and providing
and/or using trading algorithms on an E-Trading Platform.

FX: Foreign exchange.

FX Market: The wholesale foreign exchange market.
FX Trading Information: Can take various forms, including information relating to the
past, present, and future trading activity or positions of the Market Participant itself
or its Clients, as well as related information that is sensitive and is received in the
course of such activity.

FXC: Foreign exchange committee.

Fixing Order: An order to transact at a particular fixing rate.
Give-Up: A process by which trades are passed on to a Prime Broker by a party designated
by the Prime Broker to execute transactions with a Prime Broker Client.

Global Code: A set of global principles of good practices in the foreign exchange market.
Interdealer Broker (IDB): A financial intermediary that facilitates transactions between
broker-dealers, dealer banks, and other financial institutions rather than private
individuals. This includes brokers executing by voice or electronic means, or a
hybrid thereof. Brokers with any degree of electronic execution are also a sub-
category of E-Trading Platforms.

Mark Up: The spread or charge that may be included in the final price of a transaction
in order to compensate the Market Participant for a number of considerations,
which might include risks taken, costs incurred, and services rendered to a par-
ticular Client.

Market Colour: A view shared by Market Participants on the general state of, and trends
in, the market.

Market Order: A request or communication from a counterparty to enter into an FX

transaction with a Market Participant for the sale or purchase of an FX instrument CONTENTS
at the current available level.
FOREWORD
Market Participant: See the detailed definition provided in the Foreword. ETHICS

Personal Dealing: Where personnel deal for their personal account or indirect benefit GOVERNANCE
(for example, for their immediate family members or other close parties). EXECUTION

Pre-Hedging: The management of the risk associated with one or more anticipated INFORMATION
SHARING
Client orders, designed to benefit the Client in connection with such orders and any
resulting transactions. RISK AND
COMPLIANCE
Prime Broker (PB): An entity that provides credit intermediation to one or more parties CONFIRMATION
to a trade based on pre-agreed terms and conditions governing the provision of AND SETTLEMENT
such credit. The Prime Broker can also offer subsidiary or allied offerings, includ- ANNEX 1
ing operational and technology services.
ANNEX 2

ANNEX 3

70
 GLOSSARY OF TERMS
ANNEX 2

Prime Brokerage Participant: A Market Participant that is either (i) a Prime Broker, (ii)
a Client using the services of a Prime Broker, or (iii) a Market Participant acting as
an executing dealer (price maker) or execution intermediary (such as an Agent or
platform) between the Prime Brokerage Client and the Prime Broker.

Principal: A Market Participant who transacts for its own account.

Real Time: Near, or close to, the actual time during which a process or event occurs.
Settlement Risk: The risk of outright loss of the full value of a transaction resulting
from the counterpartys failure to settle. This can arise from paying away the cur-
rency being sold, but failing to receive the currency being bought. (Settlement Risk
is also referred to as Herstatt Risk.)

SSI: Standing settlement instruction.

Standards: A Market Participants internal policies, external codes (the FX Global Code
and any annexes to the Code published by regional FX committees or jurisdictions
in which the Market Participant is based or operating), and other relevant guidance
(for example, guidance provided by public sector international organizations such
as the Bank for International Settlements and the Financial Stability Board).

Stop Loss Orders: A contingent order that triggers a buy or sell order for a specified
notional amount when a reference price has reached or passed a pre-defined trigger
level. There are different variants of Stop Loss Orders, depending on the execution
relationship between counterparties, the reference price, the trigger, and the nature
of the triggered order. A series of parameters are required to fully define a Stop
Loss Order, including the reference price, order amount, time period, and trigger.

Third-Party Payment: The transfer of funds in settlement of an FX transaction to the

account of an entity other than that of the counterparty to the transaction.

Voice Broker: An Interdealer Broker with responsibility to both counterparties, who

negotiates FX transactions via telephone, conversational systems, and/or hybrid
solutions.

CONTENTS

FOREWORD

ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

71
 STATEMENT OF COMMITMENT
ANNEX 3

ANNEX 3:

Statement of
Commitment
STATEMENT OF COMMITMENT TO THE
FX GLOBAL CODE

[Name of institution] has reviewed the content of the FX Global Code (Code) and
acknowledges that the Code represents a set of principles generally recognised as good
practice in the wholesale foreign exchange market (FX Market). The Institution con-
firms that it acts as a Market Participant as defined by the Code, and is committed to
conducting its FX Market activities (Activities) in a manner consistent with the princi-
ples of the Code. To this end, the Institution has taken appropriate steps, based on the
size and complexity of its Activities, and the nature of its engagement in the FX Market,
to align its Activities with the principles of the Code.

[Name of institution]

Date: _________________________________
CONTENTS

FOREWORD

ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

This is a sample. To download the statement of commitment, CONFIRMATION

AND SETTLEMENT
go to www.globalfxc.org.
ANNEX 1

ANNEX 2

ANNEX 3

72 FX GLOBAL CODE 72
 STATEMENT OF COMMITMENT
ANNEX 3

Explanatory Note to the Statement of Commitment to the FX

Global Code

The FX Global Code (Code) sets out globally recognised principles of good practice
in the wholesale foreign exchange market (FX Market). It is designed to promote a
robust, fair, liquid, open, and appropriately transparent market, to help build and main-
tain market confidence, and in turn, to improve market functioning. The Statement
of Commitment (Statement) provides Market Participants with a common basis by
which they can demonstrate their recognition of, and commitment to, adopting the
good practices set forth in the Code.

1. How should the Statement be used and what are the benefits?
The Statement has been developed to support the objectives of the Code such as en-
hancing transparency, efficiency, and functioning in the FX Market. To that end, it pro-
vides a means by which (i) Market Participants can signal their intention to adopt, and
adherence to, the Codes good practices, and (ii) Market Participants, and others, can
more objectively assess the operational and compliance infrastructures of other Market
Participants. Like the Code, the Statement is voluntary and Market Participants may
choose to make use of it in different ways. For example, Market Participants may use
the Statement publicly, by publishing it on their website, or bilaterally, by providing it
directly to other Market Participants, such as existing or prospective Clients or counter-
parties; it may also be used by Market Participants in connection with membership of
some regional foreign exchange committees (FXCs), where applicable.

Among the primary benefits of using the Statement is raising awareness of the Code and
promoting its objectives in a pro-competitive manner. Use and publication of the Statement
provides a positive signal to Clients, counterparties, and the wider market, of a Market
Participants commitment to following good practice. Widespread use of the Statement will
raise the profile of the Code, supporting a common understanding across the FX Market
of what constitutes good practice in key areas and encouraging the broadest constituency of
Market Participants to engage with and support the Code and its objectives.
CONTENTS
2. What does using the Statement represent? FOREWORD

It represents that a Market Participant: ETHICS

(i) has made an independent determination to support the Code and recognises it as GOVERNANCE
a set of principles of good practice for the FX Market;
EXECUTION
(ii) is committed to conducting its FX Market activities in a manner that is consistent
INFORMATION
with the principles of the Code; and SHARING
(iii) considers that it has taken appropriate steps, based on the size and complexity RISK AND
of its activities, and the nature of its engagement in the FX Market, to align its COMPLIANCE
activities with the principles of the Code. CONFIRMATION
AND SETTLEMENT
Whether and to what extent a Market Participant adopts and implements the guidelines
set forth in the Code is a decision that each Market Participant should make for itself, ANNEX 1

as is the decision of whether and to what extent a Market Participant elects to utilise the ANNEX 2
Statement of Commitment. ANNEX 3

73
 STATEMENT OF COMMITMENT
ANNEX 3

3. Market Participants vary, for instance, in relation to the size and nature
of their FX Market activities. How is that taken into account?
As noted in the Foreword to the Code, the FX Market features a diverse set of partici-
pants who engage in the FX Market in different ways and across various FX products.
Both the Code and the Statement have been written and should be interpreted with this
diversity in mind.

What this means in practice is that the steps each Market Participant takes to align its
activities with the principles of the Code will reflect the size and complexity of its FX
Market activities, and the nature of its engagement in the FX Market, and will take ac-
count of Applicable Law. Ultimately, the decision of what steps should be undertaken
in support of a Market Participants Statement, and in what manner, resides with each
Market Participant, reflecting an appropriate internal assessment. For some Market Par-
ticipants, appropriate steps may include reviewing their practices in light of the Code
and establishing and maintaining policies, procedures, and controls reasonably designed
to support their commitment. In addition, Market Participants might assess the appro-
priate levels of senior management oversight and establish dedicated staff training or
embed into existing training.

4. How should Market Participants take account of their corporate

structure?
This is a matter for each Market Participant to determine. The Statement has been de-
signed flexibly to accommodate group companies providing a single, group-level state-
ment, or individual group entities providing their own statements.

5. What processes should a Market Participant consider implementing

before using the Statement?
Market Participants should consider what type of governance and approval processes
would be appropriate for them to implement in connection with their use of the State-
ment. These processes will vary between Market Participants, but it is anticipated that
the individual, or group of individuals, responsible for approving the Market Partici- CONTENTS
pants use and publication of the Statement will have appropriate oversight of the Mar- FOREWORD
ket Participants FX Market activities and the authority to make statements of the type
ETHICS
contained in the Statement. A Market Participants assessment of the appropriateness of
its own implementation policies and practices should be made independently from the GOVERNANCE

assessment by other Market Participants. EXECUTION

INFORMATION
6. When should a Market Participant start using the Statement? SHARING

RISK AND
As noted above, Market Participants may take different steps to support their use of the COMPLIANCE
Statement. The time taken to implement such steps may vary depending on the current
CONFIRMATION
practices of the Market Participant and the size and nature of the Market Participants AND SETTLEMENT
business. Having considered feedback from a broad range of Market Participants, it
ANNEX 1
is anticipated that most Market Participants will need approximately 6 to 12 months to
prepare to use the Statement. ANNEX 2

ANNEX 3

74
 STATEMENT OF COMMITMENT
ANNEX 3

7. How frequently should a Market Participant review/renew their

Statement?
Given that the nature of a Market Participants business may change over time, Market
Participants that use the Statement should consider what steps they will take to review
their activities for alignment with the Codes principles. The steps taken should reflect
the size and complexity of the Market Participants FX Market activities and the nature
of its engagement in the FX Market. Whereas some Market Participants may consider
setting a regular schedule for review, others may vary their approach based on how their
business changes over time.

In addition, it is anticipated that the Code will be updated from time to time to reflect emerging
issues, changes in the FX Market, and feedback from Market Participants and others. Upon
publication of future updates to the Code, Market Participants should consider renewing their
Statement, having regard to the nature of those updates, as well as the size and complexity of
their FX Market activities and the nature of their engagement in the FX Market.

CONTENTS

FOREWORD

ETHICS

GOVERNANCE

EXECUTION

INFORMATION
SHARING

RISK AND
COMPLIANCE

CONFIRMATION
AND SETTLEMENT

ANNEX 1

ANNEX 2

ANNEX 3

75
 ETHICS
PRINCIPLES 1-4

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LEADING PRINCIPLE
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are expected to exercise care when negotiating
and executing transactions in order to promote
a robust, fair, open, liquid, and appropriately
transparent FX Market.
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CONTENTS
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GOVERNANCE

EXECUTION
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SHARING
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CONFIRMATION
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FX Global Code
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ANNEX I
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May 2017
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76