The UK Chancellor of the Exchequer, George Osborne, is reportedly preparing to announce plans that would see formal regulation enter the foreign-exchange (FX) markets for the first time.
Osborne is expected to announce these measures on June 12, according to a report from the BBC. The FX market, which has a roughly $5 trillion per day turnover, is centered in London, given its location as a bridging point between the US and Japanese time zones.
The moves come on the back of several years' worth of scandals that have rocked the industry, including manipulation of interbank offered rates on a global basis, along with alleged market abuse relating to the benchmark rates, or fixes, set at 4pm in London.
The UK authorities will be working with the Financial Stability Board (FSB) to enact these reforms. Some of these will likely include an expanded use of electronic platforms, changes to how prices are calculated, and enacting a professional code of conduct for FX traders.
"Osborne's plans to provide transparency and regulation to FX markets are long overdue," says Matthew Coupe, director of regulation and market structure at surveillance specialists Nice Actimize. "We should be mindful that increased regulation does not close all avenues to evil. And it should be remembered that rushed regulation is the worst thing that can happen as it is never thoroughly thought through. If Osborne moves FX trading to more electronic markets, this can only provide greater transparency and greater ability for oversight.
"The FX markets operate through a number of different channels. The electronic market is one channel but it is not the answer to all problems. Over-the-counter markets still provide an exceptionally useful tool for execution, if regulated and supervised in the right manner, and holistic surveillance controls are put in place to monitor it," he continues.
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