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NEX Markets report reveals positive impact of FX Code of Conduct

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NEX Markets, a provider of electronic trading technology services in the fixed income and foreign exchange (FX) markets, has released a new report highlighting greater transparency and improved behaviour in the FX market since the Global FX Code came into effect in May 2017.

In the report titled ‘The FX Global Code: changing transparency and behaviour’, NEX Markets has witnessed a significant reduction in hold times, reject rates and a tightening of spreads on the bilateral EBS Direct platform. This suggests an industry-wide move for greater transparency and improved market behaviour.
Of the top 10 liquidity providers (LPs) on EBS Direct, average hold times have reduced 61 per cent from 93 milliseconds 18 months ago compared with 37 milliseconds today. Driven by Principle 17 of the Code, this fall in hold times indicates that fewer FX counterparties are now using the much debated ‘Last Look’ method to execute trades. In turn, this reduces the possibility of exploitation, contributing to improved counterparty relationships and a healthier market ecology.
Similarly, over the same period reject rates across the top 10 LPs have fallen 41 per cent, from an average of 5.3 per cent to 3.15 per cent, as more trades are now being executed on the price originally quoted. As well as an increase in market liquidity, this suggests that the Code has acted as a catalyst for more efficient trading.
Bolstered by advanced data insights such as NEX Quant Analytics, these findings show that best practices outlined in the Code are being implemented, and suggest that the wind of behavioural change has begun within the FX industry.
Seth Johnson, CEO of NEX Markets, says: “The symmetry between a reduction in hold times and reject rates over the past 18 months demonstrates that the Code is creating a greater openness and a sea change in behaviour for the better. With increased attestation to the principles, combined with the proliferation of data and analytics in the industry, we expect to see a continued improvement in execution quality, better behaviour and greater market transparency.”
Yet despite over 500 institutions committing to the Code since it came into effect, there are still thousands of smaller and mid-sized participants in the FX wholesale market yet to sign up.
Tim Cartledge, Global Head of FX and Head of Product, NEX Markets, says: “It is critical that all market participants get behind the Code. Central banks have played a crucial role in promoting and ensuring its adoption; now it’s time for liquidity consumers to follow suit. If the FX industry does not take this opportunity, it is highly likely that we will end up with regulations which will be lengthy and expensive to implement. Only with full adherence can we create a fairer and healthier FX trading environment for all.”

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