Driving Change In FICC Markets

Author:Ms Manmeet Rana and Tim Rawlings

On 27 October the Fair and Effective Markets Review (FEMR) published a consultation document outlining high-level policy proposals aimed at reinforcing confidence in the fairness and effectiveness of the Fixed Income, Currency and Commodities (FICC) markets, including associated derivatives and benchmarks.

Background to the FEMR

The FEMR was established by the Chancellor of the Exchequer and the Governor of the Bank of England in June 2014 to conduct a comprehensive and forward looking assessment of the way wholesale FICC markets, both regulated and unregulated, operate, to help to restore trust in those markets in the wake of a number of recent high profile abuses, and to influence the international debate on trading practices.

Focus of the review on FICC markets

The FEMR is seeking to assess the areas where fairness and effectiveness are currently perceived to be deficient; the extent to which ongoing regulatory, organisational and technological change that has taken place since the financial crisis is likely to address these deficiencies; and what further steps are needed to help ensure fair and effective FICC markets.

The Consultation paper sets out the review's current perspective on the meaning of 'fair and effective' markets and focuses on a core range of high priority actions addressing the most critical sources of vulnerability across these markets. This includes identifying the potential solutions from; i) a structural perspective (market microstructure; competition and market discipline; and benchmarks); and ii) a conduct perspective (standards of market practices; responsibilities, governance and incentives; and surveillance and penalties). The review is also seeking responses to identify potential areas of vulnerability not covered by the Consultation paper.

The review further aims to identify the appropriate fora for change, whether at industry level, the UK authorities, or at an international level.

Indicative proposals

The Consultation paper already indicates possible policy proposals:

To improve market structures, possible actions include industry-led standardisation of more FICC products; initiatives led by the market or public authorities to improve transparency, for example through greater use of electronic platforms; removing barriers to entry for new trading platforms; enhancements to market-driven competition; industry-led improvements to benchmark design; and steps to encourage greater compliance of benchmarks with...

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