Find out why we are asking banks for urgent change
In August, we urged banks and liquidity providers to map out standardised reject codes to asset managers by Q3 2021, with full implementation in H1 2022. Standardised reject codes help ensure that the rationale for a trade being rejected is well understood, in order to protect investors and ensure they are not exposed to undue market risk. Investment managers must be able to clearly understand why a trade has not proceeded, which is why the shorthand identifier, or reject code, is of vital importance. The FX market still has no standardisation of reject codes, which means each liquidity provider is able to provide their own set of idiosyncratic reject codes in heavily varying numbers and levels of granularity. Some execution providers provide several dozen, others many fewer. It is in the interests of clients of asset managers that the reasons for rejection are rapidly analysed so that steps can be taken to remedy any operational or procedural errors, or issues raised with the execution provider.
We do not wish to restrict service distinction nor the right of parties to decide the specificities of their business relationships, which is why we are proposing high-level reject code categories which would be consistently used across all execution providers so as to allow key issues and comparisons to be made and, wherever practical, to be automated. After slow progress since our initial call for standardisation in February last year, and continued reluctance on the part of many banks to fully get the process going, we remain committed to getting standardisation fully mapped out.
This is why in August we published an updated briefing on the standardisation of reject codes, outlining the lack of consistency and why this is a significant barrier. This coincided with the updated FX Global Code principles which echoes our call for greater transparency around the use of reject codes, so that asset managers can best serve their clients. There is no better time for liquidity providers, and the platforms they use to trade, to collaborate with asset managers to drive this much needed reform forward. For more information, and an outline of our proposed categories, please see our full briefing document here.