FXPA jostles for relevance in industry group crowd
Some 14 months after it was created, FXPA – the latest organization to put itself forward as the voice of the FX industry – is confident it is setting policymakers on the path to better market regulation.
As the world’s most valuable trading market, FX sustains multiple industry groups. The ACI Financial Markets Association (ACI FMA), Global Financial Markets Association (GFMA) and Wholesale Markets Brokers' Association (WMBA) are just some of the organizations that claim to exert a positive influence on regulators.
A spokesperson for ACI FMA refers to its role in the market participants group of the Bank for International Settlements’ FX working group, which is working towards facilitating the establishment of – and adherence to – a single global code of conduct standards and principles, and providing input into the wider official effort on market conduct coordinated by the Financial Stability Board.
Chip Lowry, State Street
The GFMA says it has led implementation of the G20 derivatives agenda covering clearing, trade reporting and execution in multiple jurisdictions, and that its FX expert group worked across the industry to deliver the proof of concept for stop-loss order best practice, while the WMBA points to how it has helped its members interpret regulations such as Dodd-Frank and Mifid.
Washington-based Foreign Exchange Professionals Association (FXPA) is the latest addition to the alphabet soup of FX industry groups. Founded in September 2014, it describes its objective as engaging key US and international regulators and policymakers through a combination of education, research and advocacy.
Its members are drawn from the buy side, exchanges, clearing houses, trading platforms, multilateral trading facilities, technology companies, banks and non-bank market participants.
Chip Lowry, senior managing director at State Street Global Markets and FXPA board member and chair of the association’s policy committee, says FXPA's efforts are targeted at achieving more informed regulation.
“The objective is to make policymakers aware of the implications of the actions they might take down the line," he says.
"One example of a discussion area is how end-users have been affected by Dodd-Frank's classification of non-deliverable forwards (NDFs) as a swap that cannot be traded electronically outside of a swap execution facility (SEF) in the United States, how they might be impacted if NDFs were required to be cleared and whether that would reduce market risk.”
In June, members of the FXPA spent two days in Washington meeting with senior members of the Federal Reserve, US Treasury and Commodity Futures Trading Commission, and held a series of briefings for Congressional staffers on the House Financial Services Committee and the Senate Banking Committee.
Policymakers and regulators display a wide range of understanding of FX and the financial markets generally, says Mike Harris, president of managed futures firm Campbell & Company and FXPA board member. He believes regulators welcome the FXPA’s approach, which does not involve turning up at meetings with a list of demands on behalf of its members.
Robert Savage, CCTrack
On the question of whether it is possible for a single organization to advocate effectively on behalf of buy-side and sell-side participants, Bill Goodbody, Bats Global Markets' senior vice-president, head of FX, who serves as FXPA’s secretary, says it has taken a non-confrontational approach when explaining issues in the market.
“There are inevitable tensions as member companies will have different views on certain practices,” he explains. “The extent to which regulators and policymakers impose themselves on FX markets may lead market participants to demand determinations of what is best for the market and that could lead to difficulties reconciling the buy and sell sides.
“My experience of previous industry groups is that achieving consensus is sometimes impossible. It has not been an issue for the scope of the work we have been undertaking and expect to undertake over the next year or so, but the evolution of the regulatory environment will determine whether it becomes an issue. Our intention remains to act as a forum for all member views.”
State Street's Lowry suggests there is value in raising awareness of issues in the FX market, even if the members of the FXPA have differing opinions on how these issues should be addressed.
“If policymakers understand that there are tensions between different parts of the market, they will better appreciate how their decisions affect foreign exchange,” he adds.
Robert Savage, CEO of multi-strategy hedge fund platform CCTrack Solutions, agrees the industry needs to influence the direction of regulation.
“The FXPA can help deliver a standard of conduct and a set of best practices as a starting point,” he says. “If it has one purpose it is to make sure that regulators know that some participants are trying to be ethical and forward-looking about FX issues.
"I also think that the FXPA serves a purpose in joining buy-side and sell-side interests together to create a more complete view of market dynamics.”
Helen Scott, Eris FX
However, the experiences of Helen Scott, managing director of FX broker Eris FX, suggests the industry needs better, as well as more, representation.
Scott has been campaigning for changes to broker practices, including mandatory time stamps for currency transactions so customers can check what the underlying market rate was at the time the deal was done. She also wants regulators to investigate how comparison sites operate and for sites to disclose how much commission they are being paid by providers.
Scott says she approached the Association of Foreign Exchange and Payment Companies (AFEP) for help. “However, it has a vested interest in maintaining its fee-paying members’ interests," she says. "We contacted AFEP about issues of non-compliance in June and we have heard nothing since.”