Shining a light on FX algo disclosures

Since its inception in 2017, we have been closely monitoring the Global Foreign Exchange Committee and its work on the FX Global Code. 

Despite some criticisms, the industry body tasked with overseeing currency markets covers an important role: promoting greater transparency and supporting market participants in making informed choices. This is especially crucial given the many opaque areas that persist in the FX space, which lacks equivalent standards and regulations to those found in equities or fixed income.  

Throughout the years, we have often taken our cue from the GFXC and scrutinised dozens of public disclosures, looking to shed light on some of the most controversial practices in the market. 

We wrote an in-depth article researching liquidity providers’ stand on last look. In fact, we enjoyed it so much we did it again the following year, after expanding the list of LPs analysed. On both occasions, our findings resulted in more than a few raised eyebrows. 

More recently, we looked at tagging practices on semi-anonymous platforms. Again, the lack of transparency we found in some disclosures raised concerns.  

Last year, we took it upon ourselves to delve into disclosures around FX algorithms, months before we broke the news that the GFXC was also looking into this. Over the past 10 months, we put together a repository of the top algo providers. We then created a handy tool that will make it easier to navigate across providers, their offerings, and all the bells and whistles of their algo suites. 

The repository is an ongoing project, and we plan to update it regularly as new data becomes available. 

For this first version, we collected data from 13 providers, and in this month’s cover story we take an in-depth look at their disclosures. Our analysis offers some clues on their degree of openness and transparency. 

But this is not the full story. Only half of the algo providers we reached out to for this project agreed to participate and share their information with us. 

That the other half either declined to participate or failed to respond to multiple requests for comment speaks volumes about the lack of transparency that persists in this space. Does it mean these firms have something to hide? Not necessarily. Putting the information into our repository required time – and we did happen to ask in the midst of a global pandemic, which probably didn’t help. 

Nevertheless, the work regulators and industry practitioners have carried out in recent years at the GFXC tells us there is a desire – a need, even – for more transparency for end-users. Algo providers are faced with the choice of how they want to answer the call. 

A public consultation on a series of proposed changes to the code and the introduction of cover sheets for disclosures ended on May 7. The GFXC is expected to finalise and approve the amendments to the code at its June meeting. At that point, despite the code remaining a principles-based document, algo provides will be actively encouraged to fill in the newly published templates. 

The hope is that all providers will eventually take part. At stake is more than just time set aside to fill in a spreadsheet. It’s now a matter of showing that they understand market concerns – and are willing to do something about it.