The New York Fed has unique responsibilities to support the Federal Reserve System’s monetary policy and financial stability goals. As part of that, the New York Fed participates in the foreign exchange (FX) market by intervening when directed by the Federal Open Market Committee and U.S. Treasury, conducting FX transactions for official sector account holders, managing international dollar liquidity facilities, and monitoring global market developments. It also sponsors the Foreign Exchange Committee (FXC), represents the U.S. on the Global Foreign Exchange Committee (GFXC), and convenes the industry and public sector from around the world for FX market structure conferences.
Recently, the New York Fed renewed its commitment to the FX Global Code (Code), a set of principles focused on supporting a fair and transparent marketplace.
In this article, we explain the important contributions of the FXC and GFXC, how they collaborate with each other, and review the Code’s role in supporting the FX market.
The FXC and its Global Counterpart
The New York Fed has sponsored the FXC for over four decades. This committee focuses on promoting good practices in the global FX market, providing the New York Fed with insight on FX market conditions, and collaborating with similar committees worldwide. As part of that collaboration, the FXC publishes a semiannual survey on the size and structure of FX activity in North America, alongside other committees that gather similar information on their respective areas.
The FXC is made up of industry leaders engaged in the U.S. FX market. Its membership reflects a wide range of market segments—from sell-side banks to asset managers and corporates to proprietary trading firms and platforms and more—and includes senior leaders across many different functions within those entities. This diverse representation helps provide a comprehensive perspective on issues affecting the industry. For example, the benefits of multiple viewpoints were especially apparent during last year’s transition of U.S. securities to a one-day settlement cycle, as members were able to weigh in on the impacts to every stage of an FX transaction’s lifecycle.
The FXC has long played a critical leadership role in guiding the development of good market practices. For instance, in 1995, the FXC published the Principles and Practices for Wholesale Financial Market Transactions, helping to set the stage for good market practices decades before the FX Global Code initially launched in 2017.
Following the Code’s publication, the GFXC was founded in 2017 as a forum to improve collaboration across FXCs globally and other jurisdictions with a significant presence in the FX market. The GFXC’s main purpose is to bring together central banks and private-market participants to promote a robust, liquid, open, and appropriately transparent global FX market. It also aims to advance and maintain the Code and to identify ways to support adherence.
FX Global Code and Recent Three-Year Review
The Code is comprised of 55 principles to uphold conditions for a fair and transparent FX market. Market participants demonstrate their commitment to the Code by publishing a signed Statement of Commitment on behalf of their firms. The GFXC also offers a tool that helps appropriately scale the principles to an individual firm’s role in the FX market. This aids in streamlining the review process each firm undertakes before formally adhering to the Code.
The GFXC reviews and updates the Code as needed, including a review at least every three years, to ensure it remains fit for purpose. The most recent review from late last year strengthened guidance on mitigating FX settlement risks and increased transparency around certain types of FX transactions and client-generated data. With the publication of each updated Code, the GFXC encourages all market participants to review the changes, taking into account the nature and relevance of the updates to their FX market activities, and to renew their Statements of Commitment.
Looking Ahead
While over 1,000 firms have already formally adhered to the Code, there remains scope for further adoption, especially among buy-side market participants. Although most of the top 20 asset managers in the U.S. have already adhered, broader adoption across other buy-side institutions would help provide a better balance of market participant types.
With this in mind, the New York Fed is actively working to promote adherence to the Code. It encourages firms to review their business practices against the Code’s principles and consider formalizing their commitment to good practices by signing a Statement of Commitment and posting it to a public register. For more information on how to do so, firms are encouraged to reach out to the New York Fed.
Later this year, the New York Fed will host its second annual FX Market Structure Conference bringing together market participants, academics, and official sector leaders. Last year’s conference covered topics including the evolution of FX spot and derivatives markets, key trends in FX market liquidity and price discovery, the Code, the FX settlement landscape, and FX market innovation. The upcoming event will serve as another exciting opportunity to convene and discuss the evolution of FX market structure.
Dan Reichgott is an advisor in the New York Fed’s Markets Group.
Lisa Chung is a director in the New York Fed’s Markets Group.
The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
