360T is second venue to demand FX code compliance

GFXC urges other platforms to follow suit, potentially making code adoption an entry ticket to FX markets

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360T will bar liquidity providers that have not signed the most recent version of the FX Global Code from making markets on its anonymous foreign exchange trading platform, echoing a move made by rival venue Cboe FX earlier this month.

The platforms’ policies are one answer to a long-standing question about how the code can be given teeth. Some critics have argued the market’s voluntary standards will ultimately have to be enforced via regulation.

Simon Jones, chief growth officer at 360T, says: “As code signatories, participants in the Global Foreign Exchange Committee working groups and a sitting member of the GFXC, we firmly believe in the code. Our view is that it is important to promote the efforts of the committee and the values of the code.”

In a statement, the GFXC applauds the actions of 360T and Cboe, and urges other venues to do the same.

From October 1, only LPs that have signed the latest version of the code, or those offering firm liquidity, will be able to make prices on 360T’s anonymous platform, 360TGTX. If embraced universally, around one in 10 LPs would be shut out of FX venues – estimates suggest roughly 90% of the dealer community has adhered to the code.

360TGTX is an anonymous trading venue offering market participants access to spot and non-deliverable forward (NDF) trading via full amount and sweepable liquidity, and, as of the press date, has seen volumes of around $450 billion and $25 billion so far this month for spot and NDFs, respectively.

Only participants in disclosed markets have the opportunity to engage with one another about their position on the code and properly form their own views – an imbalance the venue’s incoming rule change will seek to address.

Says Jones: “This decision has been made for our anonymous business because by its very nature, participants have a limited amount of information about each other. We as the platform operator act as intermediary and we think that introducing this new rule will be beneficial to the ecosystem.”

The FX Global Code was introduced four years ago as part of an industry-wide effort to establish standards and stamp out conduct problems in the foreign exchange market. Last July, an updated version of the code was published containing greater guidance on trading practices such as anonymous trading, last look, and pre-hedging following a scheduled review of the code by the GFXC. Following its publication, the GFXC gave market participants a year’s grace period to fully implement the updates.

Jones says 360T started work on code-compliant-only liquidity pools following publication of the updated version of the code and that, following the expiration of the GFXC’s grace period, it chose to make code adoption a requirement for any LP wanting to make markets on 360TGTX.

Jones stresses that the results of running a trial code-compliant-only pool of anonymous liquidity have been promising for both LPs and clients. He says one outcome has been that liquidity providers have been willing to offer improved pricing, given they know all participants are playing by the same set of rules. Jones also claims LPs have been responding to trade requests faster than previously, thus increasing the likelihood that – in the event a trade request is rejected – another rate in the market can be found.

The Deutsche Börse-owned trading venue is only the second electronic communications network (ECN) within the FX market to have made signing the code a prerequisite for trading on one of its platforms, following Cboe’s move for its anonymous full-amount platform earlier this month.

360T and Cboe are also among the few ECNs in the FX market to have published a platform version of the GFXC disclosure templates – designed to provide market participants with more transparency over how ECNs treat a number of trading practices such as last look and anonymous trading.

In order for an LP to be deemed code compliant by 360T, they must have signed the most recent version of the code – the July 2021 version – which dealers can demonstrate via a statement of commitment (SOC) available on the GFXC’s public register or the LP’s own website.

In this regard, 360T differs from Cboe. For Cboe, being code compliant means having an SOC to the code, with the ECN not insisting on the updated version of the standards.

At the time of writing, 1,152 financial firms have signed the code, according to the GFXC’s public register – including an estimated 90% of all LPs. Given the high rate of code adoption among LPs, Jones expects few will need to be removed from the 360TGTX platform come October 1.

“It’s a very small group of our LPs that have not yet declared their position on the code. We don’t think the code puts an undue burden on [liquidity] makers and we have an open dialogue with those LPs who are still considering their position,” he says.

In a statement, the GFXC notes the venues’ new rules ensure participants in an anonymous trading environment know whether their counterparties have signed the code, thus supporting the goal of transparency regarding participants’ commitment to best practices.

“The GFXC very much welcomes recent announcements by ECNs and platforms to admit only those liquidity providers to their anonymous trading venues that are signatories of the code, as this is an effective way to fulfil principle 22,” says a GFXC spokesperson. “The GFXC encourages other platforms to follow suit.”

Principle 22 of the code states that market participants should communicate market colour appropriately and without compromising confidential information.

Editing by Daniel Blackburn

An earlier version of this story was published in error.