The survey results are not only significant in measuring the industry response and adoption of the updated Global Code, but will also be used to assist the GFXC in deciding which areas should be focused on as part of this year’s review of the Global Code.
The key takeaways from the Survey were presented to the GFXC at its most recent meeting. According to the survey results, the updates to certain Principles of the Global Code were generally viewed as effective, including the changes to Principle 18 of the Code which relate to algorithmic trading. (See Fig 1)
Close to 10% said they found the amendments to the FX Global Code regarding Algorithmic Trading and Transaction Cost Analysis (Principle 18) to be very effective in increasing transparency, with a further 39% finding the changes to be effective. The remainder were either neutral about the changes or unaware of them, while four responses believed the updates were either ineffective or very ineffective. (See Fig 2).
The survey also asked the industry how effective the introduction of the Algo Due Diligence and TCA Templates in 2021 had been so far in helping Market Participants to meet the Code’s Principles for disclosure and transparency. Nearly 33% had found the templates to be effective, while a further 10% believed they had been very effective. Less than 1% thought they were ineffective or very ineffective. (See Fig 3).
In addition, the Survey found that 9% said their firm, as an algo provider, uses the Algo Due Diligence templates, while nearly 11% said that their firm, as an algo user, had done so. Another 3% had also used the templates in both capacities – as an algo user as well as provider. Close to 40% said they did not use the templates. (See Fig 4).
The use of the TCA Due Diligence templates by firms followed a similar pattern of adoption to the Algo templates, with close to 23% having used the template either as liquidity provider, liquidity customer or as both a provider and consumer. (See Fig 5).
The GFXC Chair, Gerardo García of the Bank of Mexico, noted that in regards to the 2024 Code Review, there should be a high bar for making changes to the Code. He highlighted that the topics from the Survey would be a potential area of future focus. The Committee also discussed recent trends in FX market structure during the two-day meeting. Fragmentation, electronification and the use of algorithms were all recognised as growing trends in the FX market and, as such, will be closely monitored by the GFXC.
During a panel discussion at the meeting, Matt O’Hara of 360T explained that electronic trading had expanded beyond spot and into derivative markets, which has contributed to market fragmentation. Automation had also increased, O’Hara said, especially among buyside market participants. Algorithm adoption and rules-based trading had also expanded across the FX industry according to O’Hara, who added that the principles in the FX Global Code on transparency have helped to drive algo adoption.
It was agreed that the next step would be for the GFXC to further engage with LFXCs and finalise the priorities for the 2024 Code review, with the next meeting of the Committee expected to be around July.
More information can be found at: https://www.globalfxc.org/docs/gfxc_survey_results_Jan24.pdf
