Transcript of Question & Answer Session Opening Remarks at the Launch of the FX Global Code

Good morning everyone, I'd like to welcome you to this press conference to mark the launch of the new FX Global Code. I am Chris Salmon, Executive Director for Markets at the Bank of England and I chaired the Global Foreign Exchange Committee meeting yesterday that led to an endorsement of the Code. I'm joined on the panel today on my left by Guy Debelle who has chaired the BIS Foreign Exchange Working Group which led this work, and is Deputy Governor of the Reserve Bank of Australia. On his left, David Puth, who chaired the Market Participants Group during this process and is CEO of CLS. On my right, Simon Potter, Executive Vice President of the Federal Reserve Bank of New York who led the work on the Code drafting.

As you will be aware, there is a UK general election campaign ongoing which means public officials like myself are Purdah. So my role today is to act as Host and I am unfortunately unable to answer any questions however my three colleagues will be more than able to do so. In terms of housekeeping before we open up. If you're in the room when you ask a question, we'll give you a microphone, please wait for that and then state your name and organisation. There are a number of journalists who are dialling in. We will take a few questions from the floor then we'll open up for you to ask down the phone line, but could you mute until we turn the questions over to you.

Before we start, Guy and then David will say some opening remarks and then we'll start with the Q&A, Guy?

Thanks very much Chris, and thanks for you all coming today. So today marks the culmination of two years effort to develop the FX Global Code and the associated adherence mechanisms. This work has been very much a public private sector partnership. We on the central banking side have been ably and vigorously supported in this work by a group of market participants, some 40-odd chaired by David, on my left. David's group contains people from all around the world on the buy-side including corporates and asset managers, the sell side, trading platforms, ECNs, non-bank participants from right around the world.

All parts of the market have been involved in the drafting of the Code to make sure all perspectives are heard and appropriately reflected. So let me first start about why this work has been going on. The foreign exchange industry has been suffering from a lack of trust in its functioning and this lack of trust was evident both between participants in the market and at least as importantly between the public and the market. The market needed to move towards a more favourable and desirable location and allow participants to have much greater confidence that the market is functioning appropriately. In that regard the Code sets out global principles of good practice in the FX market to provide a common set of guidance to the market as to what constitutes good practice. This will help to restore confidence and promote the effective functioning of the wholesale FX market.

So there are two important things worth highlighting. First of all it's a single Code for the whole industry and second, it's a global Code. On the first point the Code today is supplanting the existing Codes that have been present in the FX market for a number of years. Importantly the Code covers all of the wholesale foreign exchange industry. This is not a Code for just the sell-side it is therefore for the sell-side, the buy-side, non-banks and platforms. Its breadth is both across the globe and across the whole structure of the industry. On the global point, it's important to note that our group contained representatives from the central banks and private sector from all the largest 15 FX centres, including both developed and emerging markets. The complete Code, there it is, comprises 55 principles spanning all aspects of the market from execution to the back-office. The principles are written in plain language and should be easily read and understood by market participants and they are supplemented by a suite of examples to illustrate that practical application.

Market participants have had a number of opportunities to comment on the Code principally through the various foreign exchange committees to ensure all perspectives are appropriately are appropriately reflected in the Code. Throughout this process we've received well over 10,000 comments. The Code reflects our collective judgment as to what constitutes good practice in the market taking into account that feedback received. I think it is a good outcome that we're able to distil the points of contention down to a very small number of issues and outside of those the feedback was reflective of a widely held consensus in the market as to what constitutes good behaviour or good practice.

One of our central aims in drafting the Code is for it to be principles based rather than rules based and there are a number of reasons why this is so, but for me an important reason is that the more prescriptive the Code is, the easier it is to get around. Rules are much easier to arbitrage then principles. The more prescriptive and the more precise the Code, the less people will think about what they're actually doing. If it's principles based and less prescriptive, then market participants will actually have to think about whether their actions are consistent with the principles of the Code and the emphasis here is very much on the word ‘think’. The global Code will not provide the answers to all your questions but it should help you as a market participant, to ask the right questions.

We have developed considerable time and effort to developing a blueprint for facilitating the widespread adoption of the Code by market participants. As well as writing this Code with about how we'll actually get it to be followed. This blueprint has been published today alongside the Code and sets out the key elements we think will be required for the Code to be successful and the steps that have been taken and will be taken to ensure that this is the case. So let me just briefly touch upon three of these key elements.

First and foremost market participants themselves need to act to embed the Code in their internal practices and then monitor through time how effectively they've done so. An important element of discipline in this regard will need to come from the market itself and market participants will need to consider how they demonstrate their adherence to each other and more broadly. To facilitate that demonstration of their adherence what we've provided in the Code is a statement of commitment which we have developed. The second element which firms will then be able to sign and then demonstrate their adherence to the Code and display publicly.

Secondly, BIS central banks are leading the way and have signalled their commitment by announcing today that they themselves will follow the Code and they expect their FX counterparties to do so. So for example, we at the Reserve Bank of Australia will require that all our counterparties in the FX market will sign the Code and demonstrate their adherence to it. In addition a number of the regional foreign exchange committees will have membership linked with adherence to the Code and again, in the case of Australia we have already agreed that for there to be a member of the Foreign Exchange Committee you will have to have signed the statement of commitment.

Finally it is vital that the Code remains up to date and evolves as the market evolves. The Code is going to be collectively owned, maintained and updated by the Global Foreign Exchange Committee which met for the first time here yesterday which will continue the public/private sector partnership which has supported the development of the Code and Chris will be the inaugural Chair with David as his Vice Chair. That Global Foreign Exchange Committee will regularly assess whether new information or market developments warrant updates or additions being made to the Code and as the first example of this, given the diversity of views that we've received on the use of Last Look in the market, the GFXC today is requesting feedback on trading in the Last Look window over the coming months. On a less frequent basis the GFXC will oversee a more comprehensive review of the Code to make sure it stays relevant and up to date.

AGs I said at the start this is a culmination of two years of work by a group of people from both the private and public sector. The work has reflected a very constructive and cooperative effort between the central banks and market participants. We have all undertaken this work in addition to our regular responsibilities and this contribution of time and effort by all of us reflects the fact that we all recognise the need to restore the public's faith in the foreign exchange market and so we all share the view that the global Code plays an important role in assisting that process and will also help in improving market functioning and confidence in the market. And with that, let me know hand over to David.

Guy, thanks very much and let me again, welcome all of you here this morning. Two years ago we set out to do something that quite frankly we hadn't seen done in any financial market and that's to bring together a significant number of participants from both the buy-side, the sell-side, the platforms along with the public sector to work on a single global Code to consolidate all of the work that had been done by many foreign exchange organisations around the globe over many years. We needed to do this for several reasons. One, the Global Financial Crisis in and of itself broke the public's trust in financial markets and in financial institutions in general. Subsequent events in the foreign exchange market led to increased concerns about whether the foreign exchange market could, in fact, operate in the way that it had in the past. Our work together over the course of this two years has brought together those participants to ensure that we now have a set of principles by which the full market can operate and be guided going forward.

The foreign exchange market is a unique market, 24 hours a day, five and a half days a week, this market operates where market participants can gain a price in virtually every major and many emerging currencies. It has no central regulatory body and therefore there is no place to come together for one common set of principles. We've now created that common set of principles. Changes in electronic dealing over the past 10 years have levelled the playing field for many market participants, but in some ways it's also created an information disadvantage to some smaller players in the marketplace. While we didn't set out to make the playing field perfectly level we did want to ensure that we created a level of transparency about how business was being transacted to enable all wholesale market participants to be able to participate in the market with full confidence in its integrity and its smooth functioning.

We continued to move forward over the course of two years and I really do want to stress that we took two years for a very important reason. We did not think this was something that could be done over a six month timeframe, we really felt, truly felt that extending this over this period of time would allow us to both take on the most difficult issues that the market was facing while also identifying common practices that had things in which we could take on together. If we look at some of the tougher issues that we tackle, things like information sharing, the definition of Agency and Principal, and of course, as Guy mentioned, Last Look. We came together to solve those tough issues and to give the market guidance on how it may operate going forward. At the heart of everything we've done is the first principle and that is that market participants should operate with the highest ethical standards and if everyone in the market follows that first principle, the rest of the work we've done will come together quite well.

So over the course of this two years I think we've put together something that is very powerful. As Guy said, something that we will be able to continue to look back on and realise it will be a living document. There is a process in place now starting today to be able to continue to review the document over the course of the coming years to be able to assess what the impact of the principles are as well as changes in the marketplace over the course of that time. But I want to stress that the simple release of this document, will not by itself do anything to restore the public's trust. It will take our actions and our work together over the coming years to be able to slowly rebuild that trust and make certain that we've been able to create a fair and effective marketplace for all wholesale market participants.

I'd now like to hand it back to Chris to open it up for questions.

Thank you David, thank you Guy. So straightforward we will take questions now, please wait until you're given a mic and then we'll take this question down here first. Remember to state your name and organisation.

Could I just ask what events in the marketplace in the past, which you would like this Code to prevent in the future.

What we are trying to do is ensure a standard of appropriate behaviour across the industry. There have been some reasonably obvious events in the past which weren't appropriate. I mean I'm not sure I want to go through an articulation of all the events which have occurred. But …

People might find it useful.

But what I was going to say was there was a number of issues around say the benchmark fixings which involve inappropriate sharing of information. That is something which we directly address in the Code, so that would be one example. In fact a number of the behaviours which have been identified over the last few years had some aspect of inappropriate sharing of information involved inappropriate sharing between market participants. That is one of the things we have expressly dealt with in the Code.

Some other aspects in terms of things which have occurred in the past. We have a section in the Code around appropriate behaviour in terms of electronic trading both in terms of the way you should be using your algos and that is something which has caused issues in the past, so that would be another example. But also including just the straight interaction, say in the spot FX market in terms of whether you're acting as a principal or agent is something over which there was not much clarity in the past which has caused issues, We have provided clear guidance as to what information should be provided or disclosed to your counterparty depending on the nature of your interaction as certainly as principal or agent.

To some extent a fair chunk of what we've got here boils down to issues of appropriate transparency and appropriate information sharing to your counterparty and that I think, addresses a lot of – is at the heart of a lot of the issues that have been identified over the past few years.

Can I add something to that because this question comes up quite often is that had this Code been in place would some of the public events not have taken place? And we have no way of answering that question. But it truly is important to note that no set of principles, no rules, no guidelines and surely no laws will prevent someone who chooses to do something dishonourable or illegal. So we set out with a set of principles that I think help define what we believe are best practices in the marketplace. But if someone is truly out to do something inappropriate, they're going to continue to do so. I think we've spelled out very clearly what we think good behaviour is and I think virtually all of the market operates that way, but we're not going to be able to stop bad behaviour simply by putting out a set of principles.

I'll just add that I think it's important for all market participants to look through the Code. There's clarity over roles and responsibility. That people understand that in advance of any transactions that they do is really important. They look through carefully some of the guidance to best practice is here to make sure that the counterparties are following those. That is one of the best methods, I think going forward to make sure that the general behaviour is at a higher level than we might have seen in the past.

At the heart of the Code is transparency and ethical behaviour and I think that drives virtually everything we have in the principles and if people follow that, I think we will have fewer problems.

We'll move on to the next question, somewhere on the left.

Good morning, I was just wondering …

Could you state your name and institution, please.

Sorry, it's Nicola Tavendale, Profit & Loss Magazine. I was just wondering if the panel could tell me once a signatory has signed up to the statement commitment to the Code if there are then questions about whether any of those principles have been broken or the Code isn't being followed, what would the next steps be in that instance.

So I would say that the first thing is actually following up on something Simon just said, is actually to call it out to your counterparty, to bring it to their attention and that's very much the first steps. If it's a clear breach of Securities regulations, sorry let me step back, then you go to the Securities Regulator as you would and would have done in the past and will continue to do so in the future. But to the extent that you feel is something which is inconsistent with the broad principles of the Code then it's very much bringing that to the attention of your counterparty. So why does that actually then matter? I think one thing I think which may work better, or I expect to work better going forward than in the past is you may have said that in the past, if I did that to my counterparty they said, well, that's nice you can … the threat of taking your business somewhere else was not necessarily credible because if I went down the road, I may have received exactly the same treatment from the person down the road.

I think to the extent, if you have confidence that the market as a whole is functioning more effectively that is actually credible threat. So if I can go to you and say I don't feel your behaviour is consistent with the Code, I am going to take my business somewhere else to someone who can and does demonstrate that their behaviour is consistent with the Code. The threat of it's a credible threat I think going forward, with these agreed standards of good practice that I can actually do that and if they don't address what I see as their shortcomings then I can actually take my business somewhere else.

There's never been a truly common set of principles that applies across every jurisdiction and we now have that. I think that that by itself will serve counterparties in every way and as Guy said, that bilateral conversation that takes place between counterparties is ultimately the point of first defence.

And then the firm itself, the compliance area, will be looking at this Code trying to understand if the firm is using the Code in the right way when many of those firms sign off, they'll have to have a check off from compliance. There'll also be for the central banks, as we pointed out, we'll be looking at that for the membership of the foreign exchange committees that we sponsor and in addition, if a firm is a counterparty of ours, we'll be expecting them to adhere to the Code and can take action if they don't.

Thank you.

Next question at the back, left.

Just to follow up on that a second so …

If you state your name and institution.

So if the scenario that Nicola has just described occurs and counterparty X says to counterparty Y and says ‘you're not compliant’ and counterparty Y says ‘well sorry’. And counterparty X says ‘well I'll take my business somewhere else’. Then obviously that's something that could always have happened in the past, right? But would the Fed sees say to Deutsche Bank like ‘I'm not going to do business with you anymore because you're not compliant with the Code and I've heard in the market that you're not compliant with the Code’. How would that work?

So let's ignore any names and just go through the policy we've had up on the website for quite some time. We expect that our counterparties in the operations that we do adhere to best practices. Whether it be the Treasury Market Practices Group, or on the foreign side, this will be the Global Code, we'll change our counterparty policy for that. So we have counterparty management, we do, all the central banks have it. What we'll be discussing with the counterparty is what their performance is and how they‘ve achieved the goals that we want. That would be something the private sector would do and then we might hear something through other counterparties or some other mechanism or directly in our operation which doesn't look like people are conforming to what we expect in those best practices, then we'd have a discussion with that counterparty. There are various other measures we could take moving forward on that which we'd decide at the time whether they're appropriate.

I think we've found particularly with the primary dealers this has been effective in getting the Treasury Market Practices Group, best practices, used throughout the market in the US. The focus we put in the global Code will allow us to be throughout the world now in the FX market as we've seen a large number of central banks as you know from the BIS statement are supporting this Code.

Okay, I'll take one more question from the floor and then I'll open up to people on the phones, I think there's a gentleman, just …

You said, I think that you're expecting this to take 6 to 12 months for all the market participants to get in line with the Code. Where do you think the biggest gaps will be? What do you think will be the biggest challenges for adherence, and also just on the adherence, one of the adherence mechanisms is national [unclear] and some said, creating economic registers. I think you said that's still under development consideration. What would say are the challenges to doing that?

I'll answer the first question, and then David can pick up on that and then directly answer your second one because he's particularly well placed to do that. Sorry, now jetlag is setting in and I have a slight block on the first …

Any gaps?

Oh yes, sorry. Yeah, thanks Joel and apologies. I actually think that the market, one thing which has come out of this process which is not something I would have anticipated when we started is the fact that we've had all these people around the table, the 40-odd on the market participant side and whatever, 16 of us on the central banking side, and had this conversation over the last couple of years around some of these issues is that in the course of that I think we've already seen the market practices evolve in the direction of what's now articulated in the global Code. So I think the evolution is already reasonably there. So it's not obvious to me that there are a lot of areas where there would be gaps. I think what is the challenge and the reason why it will take some time for some organisations to be able to give themselves the confidence that they are actually compliant with the Code, is that if I'm a large global operation and I face the market in a number of different dimensions, then while the visibility of the global Code have been very much there for say, the spot FX desk, it's not necessarily there for my custodial business or my asset management business or it might be visible in my spot FX desk here in London but may not have the same visibility in my spot FX desk in some other part of the world.

So I think it's more coming to the point of being able to give myself sufficient assurance that right across the way in which my institution interfaces with the market that's it adhering to the Code. But in terms of actual change in practice, my sense is that practices have already been evolving over the past few years in the direction and so I don't think gaps are particularly large there. As I said, it's more about being able to take this high and to give myself appropriate assurance that right across the interface of my institution with the market that it conforms with the Code.

And I will add to that and Joel, thank you for the question. I think there is a tremendous amount of positive momentum around the Code. If you recall we released the first phase of the Code a year ago which really was the framework by which many of our constituents could refer and begin to operate. And so as we launched the Code this morning I can say with confidence there are a number of major institutions that are ready to sign the statement of commitment today including some of the world's most complex financial institutions who have gone through the process. They've had the slight advantage of being able to see the Code in its formation and we want to give the rest of the market that opportunity, to see the release of the Code as its coming out today. But I would expect that when we do begin to put the public registers out in roughly six weeks' time that you'll see a number of organisations ready to sign up at that moment in time.

So that from now until the end of June or beginning of July it's our expectation that we pull together the public registers, but in that time, again, a number of very complex financial institutions are ready to sign. Public registers will come in a number of different forms. We feel it's our responsibility as a Global Foreign Exchange Committee to be able to create an index of those registers and there is some criteria about what the register does including, by the way, not being responsible for validating the accuracy of what's in the Code. We can't ask people to audit that but I would expect including my own organisation, CLS, that we will probably file to be a public register and be ready to do so at the beginning of July, some time early in the second quarter.

But you should expect to see a broad set of market participants ready to sign the statement of commitment at that time.

So the public registers are definitely one method that I think will be very important if you look at the blueprint for the understanding of who signed up to the Code. There I think it will be important that we have this throughout the globe, because remember FX is this global market and we're working very hard with the GFXC to make sure that that will happen within the sort of timeline that David had, a little optimistic maybe though David, maybe on six weeks. But we'll get there soon. In terms of how long it takes to sign the statement, that really does depend on the internal procedures at firms and when they start but we think the median time will be somewhere six to 12 months with some firms earlier than that.

Thank you. I'm going to come to back to journalists in the room but I'm going to give people down the phone a chance to ask questions next if I may and I've been informed that there are a few journalists who have said they want to ask a question, including Lananh Nguyen from Bloomberg, are you there?

Hi Chris, can you hear me?

Yes, so please ask away.

Hi there thanks very much everyone. So one of my first questions is going to be in terms of the lateral consultation. Can you tell us a little bit about what the GFXC is going to be doing with that feedback and how that will inform and keep the Code up to date in the future?

Sure. So the GFXC has put out a consultation today. The Code covers Last Look, there is a principle on it which covers many aspects of Last Look and during the process over the last few months of finalising that, we've had quite a diverse set of views particularly around the issue of trading in the Last Look window. So that's obviously a reasonably hotly discussed issue in the market at the moment and so what we're looking at is to get feedback from the market as to their views on that and take that on board, and then having taken that on board, then make an assessment as the GFXC as to whether or not there's any further refinement needed in terms of the text in the Code primarily around that particular aspect. In saying that it is important to note that what is in the Code today is what is in the Code and it is fairly clear on a number of points as to our collective judgment as what constitutes good practice in terms of Last Look, particularly coming back on an earlier point around information disclosure to your counterparty.

But as I said, over the next, between now and mid-September we're requesting feedback on this particular issue, then take account of that feedback in assessing whether or not any refinement is needed to the Code, partly also reflecting the fact that this is one area where the market as of right at the moment is evolving in terms of its practice. So I think to some extent just a demonstration of the fact that we need to make sure that the Code remains up to date and current.

Yes, this happens to be Last Look, it could have been any one of the principles where we as a Global FXC felt the need to go out and make sure the Code was up to date. We spent a long time on this principle getting a wide range of views. We feel it's important to make sure we're getting the widest range of views, the consultation which is public starts today, allows us to get that and we encourage all market participants who have an interest in this to send us feedback on particularly the last bullet point in that principle which is pretty clear in the consultation document.

Okay, I believe also that [Concetta Vasant] is on the line and would like to ask a question. Are you there?

Hi, my questions are not exactly related to the FX Code, I hope that's all right.

Possibly not. No, this is a …

My question is related to Chris. Chris as this is pertaining to the bank improvement and in light of the recent revelation by [0:31:13] indicated the banking LIBOR regime, I was just wondering if you could tell us what mechanisms the bank has instituted to prevent a repeat of that?

So I think you failed to notice it was both a conference on the FX Code and I'm under Purdah, so we'll move on to the next question. Samuel [Levue] are you there to ask a question?

Yes, hello?

Samuel, please go ahead.

Thank you so I wanted to know in future just how we follow, so it states the Global Foreign Exchange Committee will be looking at Last Look this time, but in future how will you decide future topics to give feedback on?

Thanks that's a good question. So the Global Foreign Exchange Committee is an amalgam of regional 15 or 13 regional foreign exchange committees and as part of the regular course of business in those committees, various issues of particular interest are those markets get discussed. And so I suppose it would be very much a question of getting the feedback from the bottom up as to what are particularly topical issues in those markets and particularly if they're common across the globe. So I think those forums are pretty effective in distilling what are the, for want of a better term, hot button issues in the market and have been so in the past, and I expect them to continue to be so in the future. So they provide a forum for a wide range of market participants to discuss issues which are of particular interest to them and including particular issues where there may be some differences of opinion. So in the past I think that's been successful and we continue to expect it to be so in the future, but in this case more distilled up to a global level, I think which will be effective in making sure that the Code is addressing the issues which need to be addressed.

I would add to that, that one of the great outcomes of this tremendous public/private partnership that has been undertaken over the last several years is that a number of regional foreign exchange committees are now in formation that did not exist in the past. So we had, I believe the number was 8, strong foreign exchange committees around the globe. And that number is growing, so we will have a broader set of constituents that will be contributing to the global dialogue through the regional Foreign Exchange Committee structure.

As well, particularly in light of that, I think a couple of important points to note is that the GFXC includes now a number of emerging market foreign exchange committees including, most notably without singling them out, but I suppose might as well, the Chinese Foreign Exchange Committee, which has only been recently constituted in the last few months. So they are a member but we also have Mexico, Brazil, Korea …

India.

India, thank you. And then there's a FXC under formation in the Scandies, which is likely to be functional certainly by this time next year. So it is a broader group of FXCs then was there in the past, and as I said, really very much covering the largest FX centres in the world.

And our goal for the membership is to make sure from the private sector side that it's diverse in terms of which part of the industry or obviously, across the globe. The discussion we had yesterday was very robust, I think, there we saw that going forward, this will be a great forum to raise issues. The individual FXCs, are also one where I think from the central bank side where we sponsor, we want them to use this Code, think about the Code, how we can evolve the Code over time, what are the new practises where we might want to get some indication on the Code about what a good standard is going forward. So I'd expect the Code to evolve as all best practices do over time, and that will be a very positive sign. One of the things we feel about the old best practises that we all had is they weren't evolving as quickly as we wanted them to. And I think with these new structures in place, we've got a more robust way of making sure we're keeping up with, as David said, a very dynamic market.

So you have now the world's largest, most liquid, perhaps, the most important financial market with a place where all major trading centres can come together, and meet and talk about what is going on in the market, and again, anchor themselves to a common set of principles. This simply does not exist in any other market in the world.

Okay, so we'll go back into the room here. This gentleman in the front right has been very patiently waiting to ask a question.

He's also starving. [Laughter] Thanks very much [inaudible 00:36:18]. About the consultation on Last Look, maybe you could say a little bit more about the discussion that has gone in to it so far where, you know, the diversity of views, I think, it was noted on, especially that last bullet point. And do we have a sense now of how trading could be done during the window, if it's maybe with, you know, sort of walls between different desks, and, you know, whether there is some way to hedge that doesn't involve actually using the information from the trade request. Okay, thanks.

So I think, one of the things to do is look carefully through that whole principle, and there was a lot of agreement and consensus across all market participants on the notion of Last Look as being a risk control. And then there was a lot of agreement that there should be transparency about how Last Look is being used. Then there are certain practices where I think there are different views in the industry, one of the reasons we're doing the consultation is to understand those different views. What we tried to do in the Code, and this is a standard part of best practice, is use terms in a very clear way and there could be practices out there that people think are last look, or not last look, where they're not quite assigning them in the right way.

So part of the consultation is to be precise there, and then, we want to get some direct information back. If you have a client request under Last Look, what would be the way you could trade in that Last Look window? That overall is going to benefit the client, and we're clear in that bullet, that the bar is quite high because, you know, if you do not accept that order, then the actual action of trading there can adversely affect the client and the bullet point is pretty clear on that, and we're seeking information back about is there a mechanism to provide liquidity in this way where on average you're going to improve the outcome for the client?

Okay, next question. The lady, down here.

Hi, it's Marta from UFT. Have there been any concerns amongst the banks that this will make business more expensive for clients or less profitable for themselves? And separate question, if I may, there's quite a lot of focus in the UK at the moment around the leaking, or otherwise, of economic data, is data integrity a part of this Code at all?

Information integrity is part of this Code, which I think pretty much gets at what you're talking about, an appropriate sharing of information and trading on appropriate information. So I think, that is addressed. On your first point, my view and admittedly I'm a central bank not a commercial bank, but my view is, actually, this has the capacity to improve the market functioning for both sides of the market. So let me give you a concrete example of that, it comes back to something we talked about earlier. So if I go back to the benchmark fixings but particularly, the inappropriate sharing of information, so you go back in the day, there were clear cases where there was inappropriate sharing of information, then that was called out, a number of people paid big fines.

Then as a result of that, the reaction in the market was to say, "Okay, no information sharing." And that was pretty clear that an extremely conservative reaction to that and that had a material detrimental effect on market functioning. Then last year when we put out the first phase of this Code, we directly addressed that and provided some good practice around what can be shared in terms of aggregated anonymised information in a way that, I think, could and has actually over the subsequent 12 months, improved functioning in the market, because people are more comfortable in what information they can share. And that's beneficial to everyone's business, I think, and so, I don't see what we've got here as imposing stuff which is going to be detrimental to market functioning. I think actually reasonably confident is it actually will be improving market functioning. And also, nor do I see anything here which is an impost in terms of cost of operating in the business, again if anything, I think it's to the contrary.

And I would add to that, and I think we have a reasonably good test case, in that the first phase of the Code were released a year ago, and we've had nothing but positive feedback about how this has evolved both from the buying side as well as from the sell side. So I think what the Code does by, again, creating a common set of principles, against which the entirety of the market can in and of itself makes the operation of a business a much smoother one, and does without question help generate additional liquidity in it and additional flow of business. I think it's a very positive step from a cost perspective as well.

So I'll just add that you started with banks, just remember this is for all market participants and the buy side is critical for this to work. Clearly, it has to be proportionate across the buy side. You have some very large buy side firms, some smaller buy side firms. So they, when they're thinking of signing up to the Code, have to think how to apply it in a proportionate way. That should deal with the cost issue. But there's certain types of buy side firms, which are very aggressive in the FX market, and we really want them to be looking at this Code and thinking hard, particularly about how they share information. So it's not just thinking through banks, it's also the buy side, and in particularly, people who are aggressive in the FX market should be looking at this Code and making sure they're conforming to it.

Thank you.

I'm David from Central Banking. Can you give a complete example of when a central bank might be expected to violate the Code on some policy grounds and does that open more to [inaudible 00:42:47]?

So, what we do state is that central banks take actions for policy purposes. That's clearly articulated in the Code that actions which are directly linked to policy purposes are not in violation, to use your word, of the Code. So, I don't think the purposes of interacting with the market for policy, I think, are, I don't see as a violation of the Code nor do I see them as creating hypocrisy. When you're in the market though, so if I think of ourselves, again, I can speak much easier about my own institution, when we're in the market doing regular FX business or regular FX transactions related to our Reserve Management activities, then we are as regular a market participant as anyone else, and should be expected to be conforming to the same standards of good practice as anyone else.

However, our overall goal, of my institution at least, is to implement policy for the good of at least for the people of Australia, not necessarily the rest of the world, but the people of Australia and that is the overall guiding principle for the way that we operate. So policy considerations are, I think, always paramount and, I think, that's true across any central banking institution. I don't see that as being a violation of the Code. As I said, we explicitly call out where particular activities of central banks in relation to their policy activity are exempt from the Code.

So a lot of the time that we spent working on this Code, and it was pretty hard work, is because there is a public policy reason we want an efficient FX market and there could be public policy reasons the central bank needs to intervene in the FX market. At that point, they might be trying to change a price. Now, we say the market participants shouldn't be deliberately trying to disrupt the market or change prices. If the central bank is intervening and it feels there's something wrong with that FX price, it's exactly trying to do that. So that would be the classic example of where the public policy mission of the central bank would conflict with the best practice.

Actually, go on to a second.

Patrick [0:45:13], just once more. Simon, we've heard the FCA have put out a statement while we've been on as well, just confirming again that the Code will be linked to the Senior Managers' Regime and, obviously that's the single sort of biggest FX jurisdiction in London covered. What was the attitude of regulators in the US, to SEC, obviously to the Code? And secondly one is for both you, Simon and David. How many hedge funds do you expect to sign up to the Code?

So I'm not going to speak for any regulator in the US, I'm not a regulator, this is from the market side, as you all know, and that was based on our experience and interaction with the FX market. I do think that across the globe, you will see different approaches depending on the regulatory environment they have there, and how used they are to using best practices. In the US best practices have proved very helpful for us, and I have a strong expectation that in the NY market, these best practices will be very effective for what they're intended to do, and will supplement regulation in the right way and we're very clear that this is a supplement to regulation. And the second question you had, remind me?

Hedge funds.

Oh, yeah. I would expect based on what I gave to a previous answer that, you know, hedge funds, and other buy side platforms would all want to sign up to this. Now, it might take some time internally for them to think through exactly what does it mean to commit to something like this. And we've seen with newer firms, and this is the experience I've had, they tend to very much focus on their new market niche. And they're less concerned at times with what best practices are. So it's our job to educate them to some extent on how important it would be for them to look through the best practices, and make sure they're trading and doing everything else in a way that is consistent with those best practises. So over time, I would hope that all the hedge funds that are really involved in FX market, will be signing up. I'd expect that any hedge fund that would be on the New York FXC, would have signed this Code.

Can I just pick up on a couple of points, Patrick, as I think have already mentioned. In my own jurisdiction, our securities regulator has also announced over the last couple of weeks, that it is going to use the Code in terms of its surveillance of FX market activities in the Australian market, and, as Simon mentioned, there are other jurisdictions where something similar is going to occur including China actually. The other point on hedge funds, Patrick, I suppose is that, so one of the things that we emphasise in this, this is very much about the counterparty relationship, so there is an expectation that you are holding your counterparty to, in their behaviour in the market. So the hedge fund is going to have a counterparty, which is going to have its expectations around the behaviour around its behaviours. It is going to be trading on platforms, which have expectations around appropriate standards of behaviour. So you will have to interface in the market with someone who has probably fairly strong expectations around appropriate standards of behaviour.

So there is this sort of counterparty discipline effect in there, which applies to all institutions. As Simon has said earlier, the extent to which it does, very much depends on the nature of your engagement and is proportionate to it. We go at great lengths, you know, to say that. But, you know, I don't think it is affected by what category you call yourself in terms of a market participant. It is very much across all market participants in terms of the expectations around the adherence to these standards of good practice.

And I would add, having spoken to a number of hedge funds, I believe that there will be a number of signatories, a number statements of commitment coming from the hedge fund community, and as Simon highlighted, we have hedge funds that are part of the regional FX committees who have already put their statement of intent behind the Code. Again, hedge funds are not different from any other complex counterparty in the marketplace, may take the 6 to 12 months to review what's happening and take the time to sign it. But I think our expectations is that hedge funds like asset managers, like corporations, like banks, will get behind the Code over time.

I suppose just one other point to add, I think is that you know, we're releasing this today it is beholden on us as the major principals in this exercise as well as the market participants group, and also through the foreign exchange committees to promulgate this message or promulgate the Code out around across all segments of the market, and all segments of the globe for that matter. And so certainly, we've had a high level of engagement with a decently large chunk of the market, certainly a very large chunk by market turnover if you just look at the composition of David's Market Participants Group. But it's beholden on us to get that message out to everyone over the coming months to make sure that everyone is aware, and what it does mean to the nature of their engagement with the market.

Are there any more questions in the room? It doesn't look like it. I'm not aware that there's anyone else down the phone who want to ask question, but I'll just give people a chance. Anyone remotely? If not, I think you had a second question.

Thanks for acknowledging. Just had a question, we sort of hinted at it earlier, but didn't really get a chance to put it all [0:51:17], the idea of future updates to the Code, do we have any sense yet of, you know, issues that you think might be bubbling up on the surface that maybe aren't yet ready to sort of get to a consultation phase?

Let me just say we have met for two years very consistently, so multiple meetings in multiple jurisdictions, and our challenge, and I think we embraced it fully, was to take on all issues, the toughest ones we could see, and identify both what was the nature of the issue, and could we provide guidance through principles. I don't want to say that we've checked off that list in its entirety, but I think we have taken on all major issues that the market was facing.

As soon as this ink is dried this morning, I would expect there'll be new things that may crop up, and the Global Foreign Exchange Committee is ready to embrace that, and work on it as quickly as possible. And I think that is the new standard that we've set for this marketplace is that we're not going to wait two or three or four years to take on an issue that may be … nor will we be too impatient as to say because someone raises an issue, it automatically rises to the level that needs to be attacked by the committee. But, no, we haven't, we've tried very hard not to leave a stone unturned.

So I agree with a high level of confidence that we have addressed all the issues which are out there in the market at the moment. As David said, I mean, we have had this broad group of Market Participants providing input to this process regularly throughout so, I don't, to the extent there was an issue which needed to be surfaced, we have reasonable confidence that it had. Let me just talk a little bit more about how the Code will evolve going forward. So the Global FXC will meet on a regular basis probably semi-annually. So there's plenty of opportunity to surface those issues if and when they arise. There may be a need to adjust language in the Code on a sort of annual frequency, and then on a tri-annual frequency, there would be a wholesale review to make sure that the Code is appropriate to reflect the current market circumstances. I think that process going forward allows plenty of opportunity to stay on top of issues as they become current.

And I'd like to add two more points that I think are critical and have underpinned our discussions over the course of the last several years. One is, there were a number of Market Participants who encouraged us to become involved in the dispute resolution business, which is something that we do not feel is within the purview of the Global Foreign Exchange Committee. That was our bilateral conversations that have taken place over many, many years and that's where they belong. The second is, we took great pains to avoid anything that would resemble the endorsement of a single commercial model. There are many different commercial approaches to the market. Our goal as a committee was to ensure that market participants understood the broadest number of choices they had possible, so you will not see us pointing to a single commercial model as being the better way of doing business. And I think that would be another area that people may have surfaced along the way.

I just was going to add.

Yeah, please.

So I'm really glad that Chris will be chairing, the Bank of England will be providing a lot of support, a lot of people back in the room here have done a lot of the heavy lifting in the last two years. That investment from the central banks will stay there. We have a lot of focus on making sure that this does stay current, and we'll adapt to this very dynamic market as issues come up, but the investment is there from the central banks. That's why the BIS Governors set up this process two years ago, and we're going to continue with that to ensure hopefully that the FX market does rebuild this trust and performs all those vital functions.

And I would add that, I think, through the private side of the Global Foreign Exchange Committee, you've got the broadest and deepest set of representation from around the globe to ensure that key issues will be addressed in the quickest manner possible.

Okay, so I think at that point, we will draw proceedings to an end. I detect the questions have come to a natural end. I'd like to thank you for all of those questions. I'd like to thank Guy and Simon and David for providing the answers in what was a slightly ethereal press conference for myself, personally, given I couldn't actually answer any questions, but thank you very much for your time today.