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UK Money Market Code

Sarah John Head of Division Jon Pyzer Senior Manager

Sterling Markets Division Bank of England

Investment Association 19th June 2017

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www.globalfxc.org/docs/fx_global.pdf

www.bankofengland.co.uk/markets/Documents/money/code/ukmoneymarketscode.pdf

www.lbma.org.uk/assets/downloads/pmc.pdf

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Why do we need a new UK Money Market Code?

• Help to re-establish trust in financial markets • Global FX Code removed FX from NIPs Code • Codes out of date:

– NIPs Code last updated November 2011 – Securities Borrowing and Lending Code out of date and

taken down from Bank’s website – Gilt Repo Code needed updating and not easily

accessible – Bullion to be separated from money market codes (now

the Precious Metals Code)

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Approach • One combined Code – The UK Money Markets Code • Aligned with FX Code • Outline basic market procedures and good practice • Underpins professionalism and high standards • For use by participants in unsecured, repo and securities

lending markets: • Banks • Building societies • Central Banks • CCPs • Corporates • Asset and Fund Managers • Wealth Funds • Charities • Central Government (DMO), Public Sector and Local Government • Brokers

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Delivery • The Code written and owned by market

participants • Sub-Committee of Money Markets Committee

formed of market participants, convened by the Bank

• Bank of England co-ordinated and facilitated drafting

• Co-Chairs from L & G and JP Morgan

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Scope • What does it cover?

– execution of transactions in the deposit markets, specifically in the sterling and foreign currency wholesale unsecured deposit market

– repo market – securities lending transactions – all as transacted in the UK

• Link with UK Senior Managers Regime • Applies to all UK Market participants whether or

not financially regulated

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Content of the Code

• Chapter 1 – Sets the scene – Over-riding principle

“Above all the Code’s underpinning principles, there should be a commitment by all UK Market Participants that adherence to the Code primarily includes an undertaking to abide by Code’s over-riding principle. That principle is to always act in a manner to promote the integrity and effective functioning of the markets. The Code is intended to promote an open, fair, effective and transparent market.”

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Contents of the Code • Chapter I

– Ethics • Honesty • Integrity • Transparent • Highest standards of professional conduct

– Governance and Risk Management • Senior management governance framework • Risk management controls for market activity

– Information Sharing, Confidentiality and Communications • Clear and accurate • Protecting confidentiality

– Execution and Settlement • Need for care and accuracy

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Contents of the Code • Chapter I

– Notably also covers • Scope – at least one side of a transaction

executed in UK, can be settled outside of UK • Adherence

– applies to all – should be embedded, monitored, and demonstrated

• Market colour – Anonymous and aggregated

• Failed trades – trades should not intentionally be allowed to fail – all efforts should be made to settle a trade

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Chapter 2 Unsecured Money Market • Roles in the market must be clear – principals,

brokers, matched principals • Negotiation and execution

– Firmness of quotation • Name passing • Documentation with brokers • Electronic platforms • Market conventions on day counts • Settlement of differences

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Chapter 3 Repo • Coverage of the Code • Standards

– Deliberate market disruption – Failed trades

• Role of agents and brokers • Legal agreement • Margin, custody and default • Confirmation and settlement

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Chapter 4 Securities Lending • Coverage • Standards • Deliberate market disruption

– Failed trades • Role of agents and brokers • Authority and Capacity • Legal Agreement • Tax, voting rights and benefits • Settlements, custody • Role of agents and brokers • Legal agreement • Margin, and default

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Contents of the Code

• Glossary • Statement of Commitment

– Institutions are asked to sign a simple Statement of Commitment to the principles of the Code

• Explanatory Note – Quick reference guide – FAQs – Examples

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Use and Adherence • Code provides a useful guide as to best practice • Proportionality is important • Chapter 1, 2.3: “It is however recognised that less complex and generally smaller UK Market Participants may need to exercise judgement in assessing whether it is appropriate and practical for them to adopt all the specific practices set out here. The Code should be read in that context and wherever best practice is described, it is understood that the smaller, less complex UK Market Participants may have sound, practical reasons for a different approach”

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Use and Adherence • Expect it to be embedded by start of 2018 • Sign Statement of Commitment • No central register • Expectation by market participants that

counterparties have signed • Embed into your policies • Could publish on your website

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Restoring Trust • The Code (alongside the Global FX Code and the

Precious Metal Code) sets out high standards for market behaviour

• Commitment to its principles by all market participants ensures confidence and trust in the market

• Code is an important step along the path to re-establishing trust

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