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David Woolcock 17-Dec-2019 11:00:00 6 min read

The Financial Advent Calendar


We have moved on from the conference season which highlighted AI, Machine Learning and Algo trading as core topics de jour. Interspersed in this were concerns over information security, predictions of a greater take-up of cloud computing and regulatory attention on cybersecurity. Now we have moved well into Advent and the festive season is getting into full swing. So what has been cropping up behind the doors of the Advent calendar this year?

First behind the doors was the closing of the ESMA survey on Market Abuse (MAR) and the beginning of December saw the first hints of the issues respondents had in their submissions. Alongside concerns of the definition of insider trading it raised issues for the spot FX market that would not be best described as bringing seasonal cheer.

The Financial Markets Law Committee (FMLC) published its letter addressed to ESMA that summed up the point nicely –

“Market participants are likely to face difficulties in identifying what is relevant as inside information in the context of spot FX contracts.” And it goes on to conclude “Should the E.U. choose to regulate in this area, it might be important to review the application of the FX Global Code which has been adopted by market participants in several jurisdictions. A new and specific E.U. regime, based on broadly defined conduct, may disrupt the process of bedding-down the FX Global Code and could even lead to the fragmentation of global FX and securities markets.”

Also it would mean that spot FX is included in MiFID II. If spot FX is classified as a financial instrument there will be the challenge of transaction reporting in capturing, reporting and analysing the data that would be required. Given the size and speed of operations in the spot FX Market, particularly at a time when the revision and optimisation of existing data obligations is still underway, the last thing we need from Santa is further complications in Regulatory Reporting!

The next door of note was when we opened the press release from the Global FX Committee (GFXC) which met in Sydney to consider the 2020 review of the FX Global Code (FXGC); the areas that had been previously flagged duly came up for further attention.

The GFXC recognised that further work remained to be done to gain greater adherence to the code amongst the buy-side meaning, in particular, corporates can expect copies of the Code being loaded on Santa’s sleigh this year. It was also agreed that further work is needed with regard to anonymous trading with various issues being highlighted such as the use of tags. Also, perhaps reflecting the coverage of algorithmic execution and Transaction Cost Analysis (TCA) at the conferences, it was agreed that further guidance and TCA incorporation into the Code would be forthcoming.

Also given the active debate that still rages around last look and pre-hedging it was no surprise that execution principles were causing a seasonal rush of cards being sent in on this topic. It was noted that this feedback needed to be responded to. We can expect further explanatory materials once the mulled wine and mince pies have been digested.

As we reach towards the middle of Advent and with a UK election behind us, attention will return to other news behind the doors of our Advent calendar. One did fill me with the joys of the festive season and that was news of the much heralded Financial Transaction Tax (FTT) but not the one proposed by the UK opposition party which sends shivers down the spine better than any Christmas ghost.

The EU 10 who are still pushing for a FTT received a seasonal missive from the German Finance Minister, Olaf Scholz, that they would levy a FTT of 0.2% of the transaction value of purchases of shares in large companies. This limited approach is to be welcomed as many in the EU have advocated an FTT to include derivatives and other securities which would have also seen a tax on FX transactions. It should be kept in mind that the UK already has a similar levy for equities in the form of stamp duty (or Stamp Duty Reserve Tax if trading electronically) when you buy shares at a rate of 0.5% but with many exemptions so as not to discourage smaller stocks on the AIM market.

The UK stamp duties in the UK have been around since 1694 and bring a nice Christmas present to the Exchequer of around £3.5 billion. By way of contrast the plans afoot in Germany envisage raising about EUR1.5 billion so will not be spreading that much seasonal cheer!

Let’s see what other surprises we might see behind the Advent calendar doors as the festive season progresses.


David Woolcock

David Woolcock is an independent consultant and Director, Business Consulting at Eurobase. In addition, David is Chair of the Committee for Professionalism at ACI – The Financial Markets Association as well as Vice-Chairing the ACI FX Committee. He is also a member of the Market Practitioners Group for the Bank of International Settlement's FXWG that wrote the FX Global Code.