Investing February 23, 2001

Bank Group Seeks to Curb Forex Speculation

February 23, 2001 (PLANSPONSOR.com) - In response to financial crises over the past few years, a group of international banks has issued "best practice" guidelines, hoping they will reduce the negative effects of speculative currency trading.
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But the group also admitted that further international crises could not be prevented by adopting guidelines alone.

The guidelines were endorsed by bodies responsible for foreign exchange market standards in London, New York, Tokyo, Singapore and Hong Kong.

But participants who helped draw up the guidelines, said the banks were often not responsible for the speculative excesses since many codes of conduct were already in place in internal bank practices. Rather, they said that leveraged funds often caused the currency runs and they were not a party to creating the guidelines.

The standards were drawn up in response to a recommendation by the Financial Stability Forum’s (FSF) 40-member working group on highly leveraged institutions.

FX Best Practices

Among the eight  foreign exchange best practices trading principles that were created were the following:

  • FX managers should be cautious when executing orders in volatile markets
  • Regarding stop/loss orders, foreign exchange managers should communicate frequently with customers on market developments, especially regarding individual trigger levels
  • Caution should be taken that customers’ interests are not exploited when financial intermediaries trade for their own account
  • Institutions should be attentive at all times to ensure the independence and integrity of any market-related research that they publish.

The FSF member banks are: ANZ Bank, Barclays, DBS, HSBC, Societe Generale, Banamex, JP Morgan Chase, Deutsche Bank, Morgan Stanley, Standard Bank of South Africa, Bank of Tokyo-Mitsubishi, Citibank, Goldman Sachs, Nomura Securities, Standard Chartered and UBS Warburg.

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