Code of Conduct to Set Standard for FX Market

Governor of the Bank of Jamaica (BOJ), Brian Wynter, says the Foreign Exchange Code of Conduct, currently being crafted, will bring greater order and standard to the foreign exchange market.

He noted that while there are excellent institutions operating within the market, the standards are not consistent across all entities.

“So we are looking at creating some common standards that will assist in an effective market from the consumer’s point of view. It will also have parts that deal with how dealers should interact with each other and with the central bank,” he noted.

Mr. Wynter was addressing a forum hosted by the Jamaica Chamber of Commerce (JCC) at The Knutsford Court Hotel in New Kingston on October 18 to discuss, among other things, the BOJ’s recently introduced Foreign Exchange Intervention and Trading Tool (B-FXITT).

The Foreign Exchange Code of Conduct is being drafted by a subgroup of the Foreign Exchange Market Development Committee, which consists of market intermediaries such as banks, authorised dealers and cambios.

The BOJ Governor said the final draft, which is expected to be completed in a few months, will be presided over by the central bank.

He explained that all major markets have codes of conduct governing foreign exchange, and that a global foreign exchange code of conduct was recently introduced.

The FX Global Code was drawn up over the past two years by a coalition of central bankers known as the FX Working Group.

The code’s 55 principles lay down international standards on a range of practices, from the handling of confidential information to the pricing and settlement of deals.

Meanwhile, the BOJ Governor explained that B-FXITT, which is a tool used to facilitate the buying as well as selling of foreign exchange, is designed to foster more competitive behaviour among authorised dealers and cambios.

“The process should reward the dealers who provide the best service and the best margins to customers, and disadvantages those who do not,” he contended.

B-FXITT corrects weaknesses in the old selling mechanism. In a dynamic market, using the previous day’s weighted average selling rate would not always reflect the true market price on a day of transaction.

This would mean that some institutions may have bought foreign exchange from the central bank at a price too expensive or too cheap, compared to what they might have paid in the open market.

B-FXITT mitigates certain issues and levels the playing field for all participants. Through the new foreign exchange system, BOJ now sells foreign exchange at market-determined rates, and the average daily rate at those times is now at a more accurate reference rate.

The JCC forum was organised with a view to encouraging dialogue around B-FXITT, and provided an opportunity for business operators to exchange their thoughts with the central bank’s head.