Keeping Your Forex Technology up to Code

The FX Global Code grounds the industry in principles to maintain a fair and open marketplace. As this code applies to all market players, Devexperts has committed to these principles and maintains that they should be upheld in the development of the technology used in the marketplace as well.

What is the FX Global Code?

This set of global principles of good practice in the foreign exchange market (Global Code) has been developed to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market.

The code created primarily for institutional brokers (e.g. banks, liquidity providers) has no specific requirements for a vendor. However, as a software solutions developer for brokerages and exchanges involved in the FX market, we hold technology to the same standard and commit to creating trading technologies and consulting clients in adherence to these principles.

In Forex, errors made is money lost. Intent is irrelevant. This means that a single human error can cost a brokerage both financially and negatively impact their reputation. By aligning ourselves with the FX Global Code, we ensure that our software solutions can be put to use for Forex players to facilitate our clients in meeting these demands; reducing human error, saving on oversight costs, and securing their reputation.

Take, for example, Principles 9 and 10 regarding execution.

PRINCIPLE 9: Market Participants should handle orders fairly and with transparency in line with the capacities in which they act.

PRINCIPLE 10: Market Participants should handle orders fairly, with transparency, and in a manner consistent with the specific considerations relevant to different order types.

Through technology, these principles are handled automatically. Within our execution platform, we can make sure that all orders are handled electronically and that they are following the rules. Transparency is built-in with order tracking and time stamps. The human element, and therefore human error, is removed.

In Risk Management and compliance, particularly principles 26, 27, and 30, our technology is working for you:

PRINCIPLE 26: Market Participants should maintain an appropriate risk management framework with systems and internal controls to identify and manage the FX risks they face.

Technology takes the risk out of Risk Management. With our credit engine and risk management system, technology takes care of monitoring the client’s credit and the brokerage’s exposure to their liquidity providers. Brokers can monitor liquidity in real-time to understand their exposure and risks rather than relying on the liquidity provider, avoiding some of the issues we saw during the Swiss National Bank Crisis in 2015.

PRINCIPLE 27: Market Participants should have practices in place to limit, monitor, and control the risks related to their FX Market trading activity.

PRINCIPLE 30: Market Participants should have processes to measure, monitor, report, and manage market risk in an accurate and timely way.

In operational and technology risks, as outlined in principles 33 and 34, software is the white knight. Operational risk:

PRINCIPLE 33: Market Participants should have business continuity plans (BCPs) in place that are appropriate to the nature, scale, and complexity of their FX business and that can be implemented quickly and effectively in the event of large-scale disasters, loss of access to significant trading platforms, settlement, or other critical services, or other market disruptions.

Technology risk:

PRINCIPLE 34: Market Participants should have in place processes to address potential adverse outcomes arising from the use of or reliance on technological systems (hardware and software).

There is software to facilitate monitoring everything. Even for operational and technology risks. With software solutions, if you have a disaster like losing a data center or network link, the market data can be live in multiple sites. This way, if something fails, another site takes over. When technology is first implemented, these types of risks come as a second thought, but it is important to have recovery and business continuity plans in place using technology. Risks avoided. Crises averted.

And to adhere to further risk management principles such as Principle 50 regarding Settlement Risk, a system can be implemented to monitor exposures so you can act on those potential risks by closing and settling positions.

As well, principle 44 of the FX Global Code calls for the implementation of:

…straight-through automatic transmission of trade data from their front office systems to their operations systems.

This means, getting away from manual work, implementing straight-through processing. For example: not manually keying from one system to another. With software automation, manual tasks such as this become free from human error.

Money and technology have been flirting for ages and become nearly wed in recent years. With advancements in software solutions, there is no reason for brokerages and exchanges, to not meet the requirements laid out in the Forex Global Code.

JON LIGHT
JON LIGHT
VP of Trading Solutions at Devexperts