Within the FX Global Code, Market Participants comprise of both those who place orders and those who execute orders. The FXWG expects to “enhance the articulation of good practices underlying the execution principles in phase 2”, that are expected in May 2017.
Whilst some guidance on the Principle of Execution is contained within the Phase 1 content, as informed by the FXWG, the principles relating to electronic trading, trading venues, brokers, prime brokerage and unique features of FX swap, forward and options transaction topics are currently under development and will be expected for publication in the Phase 2 material next year.
In the Phase 1 content, the FXWG advise that the Foreign Exchange Market has traditionally operated as a Principal-base market. One where Market Participants who handle orders for Clients and Clients themselves both act in a Principal capacity, despite Agency-based execution also taking place. Often the same Market Participant may handle Client orders in one instance and in another, place orders with other FX Market Participants.
As such, the FXWG believe the following high-level principles should considered by FX Market Participants when applying the guidance on Execution:
FX Market Participants should be clear about the capacities in which they act.
Client orders should be handled fairly and with transparency by FX Market Participants.
FX Market Participants should only Pre-Hedge orders when acting as a Principal (and should do so fairly and with transparency)
FX Market Participants should not request transactions with the purpose of disrupting the Market.
Market Participants acting as Principal should be fair and reasonable when applying the Mark Up to Client transactions.
Clients should be aware of the risks associated with their requested transactions and they should regularly evaluate the execution that they receive.