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New rules improve efficiency of FX markets - NEX

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LONDON (Reuters) – A push towards greater transparency in the $5.1 trillion (4 trillion pounds) a day global foreign exchange markets has resulted in improved efficiency and lower rejection rates in currency trades, according to a study by NEX group <NXGN.L> published on Tuesday.

The moves are part of a new global FX code of conduct that aims to draw a line under four years of scandals over price-rigging that had dented investor confidence in the world’s biggest financial market.

In recent months more financial institutions, including top banks and trading platforms, have signed up to the code, introduced in May 2017 by representatives of a working group of major central banks after two years of work.

Market watchers have pointed to increased transparency over the past year or so in executing trades at a time when turnover in currencies has increased.

This is most visible in the so-called “last look” stage in currency trading, which refers a market participant’s final opportunity to accept or reject a trade request from a client against its quoted price.

Investors were previously concerned that the “last look” stage enabled currency traders to step out of a potential trade with investors if the market moved against their positions.

But the industry moved to amend this behaviour by advocating in December 2017 that all activity undertaken by a market participant during this “last look” stage was disclosed to clients to enable them to better manage their transaction costs.

An analysis by NEX group, a London-based electronic broker, of the top 10 liquidity providers on its EBS currency trading platform showed that the average waiting period for executing trades and rejecting transactions has dropped since the code came into effect.

Average hold times have dropped 61 percent on currency trades to 37 milliseconds from 18 months earlier while rejection rates on trades have shrunk by more than 40 percent to 3.2 percent, the analysis showed.

“The symmetry between a reduction in hold times and reject rates over the past 18 months demonstrates that the Code is creating a greater openness and a sea change in behaviour for the better,” said Seth Johnson, CEO of NEX Markets.

Thomson Reuters <TRI.TO>, the parent of Reuters News, competes with NEX Group via its own multi-dealer platform.

(Reporting by Saikat Chatterjee; Editing by Gareth Jones)

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