Reject Code Standardisation
FX MARKETS
As part of the IA’s ongoing commitment to effective FX markets, the Investment & Capital Markets Team, along with the FX Committee, has called for standardisation of reject codes.
Standardisation of Reject Codes Reject codes are electronic indicators sent out by liquidity providers when they reject a client's trade, to give a proximate reason as to why. Asset managers will analyse trades in order to ensure they are achieving best execution for their clients. The lack of standardised reject codes, however, impacts the ability of asset managers to rapidly analyse rejections to remedy any operational or procedural errors and raise issues with liquidity providers.
IA Position Papers The IA’s first call for reject code standardisation in electronic FX markets was published in early 2020, when the IA published a paper setting out a number of proposed standardised codes and requested that liquidity providers begin to implement them when issuing trade rejects. A lack of progress on the part liquidity providers to implement these codes, due in part to the COVID-19 pandemic, led to a further call by the IA in August 2021, reiterating concerns and calling on liquidity providers to provide code mapping to asset manager clients by the end of Q3 2021, with full implementation to follow in the first half of 2022. The timing of the IA’s publication came shortly after updates to the FX Global Code which saw new language added calling for greater transparency around the use of reject codes.
IA Engagement Following the publication in August of the IA’s position paper, the IA, alongside the Chair and Deputy Chair of the FX Committee, held a series of bilateral meetings with representatives of major banks and FX trading platforms in order to encourage progress.
The IA has now received indications from many major liquidity providers and trading platforms that progress is being made on standardisation and that implementation is expected in Q1/Q2 2022.
Next Steps As we move forward into 2022, the IA will continue to engage with liquidity providers to maintain forward movement on implementation and seek widespread adoption of the proposed codes.
Hugo Gordon Senior Policy Adviser, Capital Markets hugo.gordon@theia.org