Ethics, Best Practices, and Self-Regulation: A …...ethics matter. 103 A Crossroads for the Global Foreign Exchange Market Ethics, Best Practices, andSelf-Regulation: Second, I’d

101

A Crossroads for the GlobalForeign Exchange Market

Ethics,Best Practices,

Self-Regulation:and

A speech presented by Mark Snyder,Chair, Foreign Exchange Committee,at the FX Week USA 2004 Congress

July 13, 2004

IntroductionI am honored to have participated in the work of the Foreign Exchange Committeefor the past five years and to have been named its Chairman this past January. AndI am very pleased that the organizers of this event have seen fit to recognize theefforts of our Committee to improve the integrity and functioning of the globalforeign exchange (FX) market.

I’d like to acknowledge in particular David Puth of JP Morgan Chase, whopreceded me as the Committee Chairman, and Dino Kos and his team at theFederal Reserve Bank of New York, who provide invaluable infrastructure, inputs,and a home-away-from-home for our Committee.

In my comments today, I have three objectives:

� First, I’d like to reflect on some of the “bumps in the road” that our industry hasendured over the past couple years—large FX-driven losses due to a host ofweak management practices and trader fraud, as well as criminal prosecutionsand the like—and suggest that in any capital market, particularly in an unregu-lated market such as foreign exchange, personal, corporate, and industrywideethics matter.

103

A Crossroads for the GlobalForeign Exchange Market

Ethics,Best Practices,

Self-Regulation:and

� Second, I’d like to reiterate the criticalimportance of industry best practices andacquaint or reacquaint you with the workof our Committee in this context.

� Finally, I’d like to consider the very specialrole of foreign exchange as an unregulatedfinancial market—self-governed, super-vised, but not regulated. I’ll make the casethat this unique circumstance is a greatvirtue of the currency business as com-pared with other capital markets, and thatthis circumstance places on us a specialburden to conduct our business in accor-dance with the highest possible stan-dards.

Ethics MatterEthics matter. I believe they matter for reasonsnot often spoken of in the financial marketsbecause people are more than simply rationaleconomic agents that seek to increase theirwealth as their only utility function. If peopleare to find meaning and significance in theirlives, which I believe are two of the key yearn-ings all people have, then ethical standardsmust be integrated into their daily commercialdecisions. However, if others don’t share thissame belief about the nature of man, thenethics also matter if only in the sense of enlight-ened self-interest. In a perfect world, all dealersin the over-the-counter FX market—togetherwith other participants in the wholesale FXmarket—would embrace best practice guide-lines, ethical standards, and governance prin-ciples so as to foster the highest possible degreesof trust and confidence in currency trading.

In this imaginary world of commercialintegrity above reproach, fraud and massive

trading losses resulting from disregard forprofessional ethics would be a thing of thepast. Free market competitive forces wouldreign supreme, unleashing creative energiesand driving robust sustainable volume growthin world currency markets.

It is a market reality that FX plays an integralrole in the efficient use of capital and laborallocation. Frankly, through the globalizationof finance and trade we help facilitate risingliving standards the world over. But it is also areality that individuals with little regard for theimpact of their activities on the welfare ofothers have been tempted to place short-term personal gain—or sometimes just status,it seems—above the best interests of theirfirms and of the market at large. But I wouldmake the case that this short-sighted thinkingis actually at the expense of their long-termeconomic self-interest. Foreshortened tradingand sales careers, disgorgement of profits,fines, and even prison time, after all, don’tadd up to sound personal financial or careermanagement.

Trust has an intangible, difficult-to-measure, but nevertheless real market value.But in contemplating the role of trust in amarket, I think we have to ask ourselves howtrust is established and maintained on a day-to-day basis. Can we legislate trust? Can welegally mandate ethical behavior andeffectively enforce it through regulation? Wecan try, but a world of regulatory enforcersand the combined efforts of the world’spolice agencies have never been able toeliminate even extreme ethical breachesand criminal enterprise.

104 FOREIGN EXCHANGE COMMITTEE 2004 ANNUAL REPORT

No amount of regulation will ever be ableto do for us what we must do for ourselves.And I’ll return to this idea at the conclusion ofmy remarks.

For now, I’d like to briefly review a pair ofthe better-known blowups and scandals seenin our industry over the past few years andnote a common theme. These activities—ranging from incompetent risk managementto criminal fraud—can be seen as textbookcases of the ethical dilemma that I have justdescribed: the inevitable tension betweenthe quick fix or short-term gain, on the onehand, and the sustainable, profitable long runon the other.

The case of the National Australia Bank(NAB) is a cautionary tale for all of us temptedto maximize returns with practices that stretchthe limits of our skills and competence. Aregional institution with a steady book ofprofitable sell-side businesses, NAB appearsto have been testing the deep waters of thecurrency options markets by taking risks forwhich it was not prepared. Result: 360 millionAustralian dollars in trading losses; manyruined careers amongst traders, theirmanagers, and corporate executives; andpending civil and criminal penalties.

Decisions made by individual traders wereclearly to blame for the events that transpired.But according to media reports, thesupposedly “rogue” trading activities had infact been noticed over time. High turnoveramong trading and supervisory personnel,coupled with the temptation to garner higherbonuses and perhaps traders’ attempts toelevate their market status as “big hitters,”

appears to have let quantitative risk manage-ment erode into undisciplined punting andled senior management to look the otherway as the situation drifted toward itsinevitable conclusion.

So did internal risk management systemsfail? Or did individual firm employees chooseto ignore the red warning lights of thosesystems? At the end of the day, it clearly doesn’tmatter, because the result is the same: short-term greed and hubris careening out of controland collateral damage for employees beyondthe desk, the bottom line of the firm, and thereputation for the FX industry as a whole.

Operation Wooden Nickel was a verydifferent affair. Fraud is fraud. And no amountof regulation will ever prevent those withcriminal intent from breaking the law. But aswith trading blowups, this scandal—uncoveredby a combined task force of the Federal Bureauof Investigation and the Commodity FuturesTrading Corporation and resulting in chargesagainst a total of forty-seven people (five fromthe wholesale FX banking marketplace)—beganwith a slippery slope that led from less-than-optimal trading practices straight through tocriminal conspiracy.

At the heart of the Wooden Nickelincident, which included accusations of fraudagainst retail investors and against some of thebest known and most respected firms in ourindustry, appears to have been a criminalabuse of a long-tolerated but much discour-aged practice of allowing “off-market deals”and the awarding of “points” to grease theskids of commerce between banks and voicebrokers. The affidavit filed in the case calls it a

105ETHICS, BEST PRACTICES, AND SELF-REGULATION

“points-for-cash scheme.” While those of us inthe currency markets can read the affidavit andsee that the fraud involved more than theabuse of voice broker points, and that theamount of fraudulent gains was small bywholesale financial market standards, the factremains that allegations against the over-the-counter foreign exchange market in theaffidavit are not flattering. I quote: “Based uponinformation received from various cooperatingwitnesses in the forex industry, I have learnedthat, over a period of at least twenty years,there have existed schemes involving riggedforex trades being passed from corrupt banktraders at large financial institutions to co-conspirators in exchange for kickbacks.” Clearlya statement such as this does not do any of usor the industry any good.

The practice of lending points to a broker inorder to facilitate the broker’s effort to deal at anoff-market price in order to hide a trading loss isa vestige of relationship-based trading that israpidly disappearing as financial institutionsadopt more comprehensive risk managementand, increasingly, electronic trading.

The Foreign Exchange Committee, for itspart, has discouraged the practice for nearlytwenty years. As stated in the Committee’s1987 annual report: “Whatever an institution’spolicy may otherwise be, under no circum-stance should a trader request or a brokeragree to lend points.”

It’s hard to be more definitive than that.

On August 1, 1990, the Fed here in NewYork issued a formal policy statement on theuse of points, stating that “ineffective policies,

procedures, and controls over disputedcontracts by a financial institution can result ininaccurate records, misleading reports filedwith regulatory and tax authorities, misappli-cation of funds, and potential violations of theinstitution’s internal policies and Federalcriminal laws regarding gifts to bankpersonnel. The U.S. bank regulatory agencieshave found that the use of ‘points’ is a practicethat can lead to significant abuse and isconsidered an unsafe and unsound bankingpractice.”

Pretty clear: It’s a bad idea; don’t do it.

I know that there’s often a disconnectbetween the executive offices and the tradingfloor. And I know that currency dealing is acomplex enterprise—it certainly is on mydesks. But when armed federal agents areleading your traders away in handcuffs . . .well, it’s a little late to take notice! We all needto insist that all traders are clear on what isexpected of them, and to ensure that deskmanagers grasp their oversight duties clearly.

It is disheartening to know that discreditedpractices are taking place in our industry. Andit is, I admit, a little satisfying to seemalfeasance punished. But it can’t makeanyone happy to read something like theharsh assessment that appeared in theNovember 24, 2003, issue of Securities Weekmagazine: “The over-the-counter forexmarket is lightly regulated and huge and it hasbecome known as a hotbed of fraud.”

Think about that: a hotbed of fraud.


I don’t recognize that description as themarket in which I work. Another example ofconcern about ethics in our industry came tomy attention in May while sitting on a panel ata conference in London along with a numberof my distinguished colleagues. A couple ofcurrency overlay managers commented that afew of their pension fund clients wereconcerned about which banks their managerswere dealing with in the wake of all the “FXmarket scandals” and had questioned whetherthey “reviewed the standards of conduct oftheir FX banks.” If this is how those outside ourindustry see us, then we have some work todo. Simply declaring codes of ethics and thelike isn’t enough. Frankly, the kind of frauduncovered in the Wooden Nickel affair mighteasily have moved under the radar of seniormanagers—even those committed to soundtrading practice.

Much of contemporary financial educationand practice is dedicated to wealth maximi-zation as an end in itself. And certainly, makingmoney for one’s clients, one’s employer, andoneself is a defensible rational practice whollyconsistent with fiduciary responsibility. But weneed to integrate ethical thinking in the fabricof our workplaces—if for no other reason thanthat ethical behavior is in the long-termeconomic interest of each and every one of us.

In a recent paper in the Financial AnalystsJournal entitled “Why Ethics Codes Don’tWork,” John Dobson persuasively argues thatessentially all financial services professionalshave been exposed to guidelines on ethicsand professional responsibility, yet too manyindividuals have ignored even the basic

principles of these guidelines. The reason forthe failure of ethics codes, Dobson suggests,is “acculturation—that is, implicit educationinto a certain moral value system. Individualsbecome acculturated by the day-to-daybehavior they see around them because theyassume such behavior is what is rational andacceptable in the field. In the financialservices industry, the implied moraleducation comes through exposure to thevalue systems displayed in educationalinstitutions, the industry, and people’s firms,particularly by the firm’s senior managers.Acculturation comes from observing theactual behavior of other individuals.” In otherwords, unless most people see leaderswalking the walk as well as talking the talkaround them, all the ethics codes in the worldwill have little effect.

Sustainable and above-board businesspractice is rational and wholly consistent withwealth maximization. Organizations composedof ethical professionals excel in long-termfinancial performance. I’ll return to this topicat the conclusion of my remarks.

Clearly, unless we get our own house inorder, others outside our industry may try todo it for us. And ignorance is no excuse. TheForeign Exchange Committee is doing anawful lot to ensure that our colleagues in theFX market are aware of what constitutes bestpractice, what constitutes unwelcomeimpermissible behavior, and the kind of highstandards to which I think we must aspire.

So let me turn to the “blatant self-promotion” section of my remarks and tellyou about the Foreign Exchange Committee.


Market Best Practice and the ForeignExchange CommitteeFor the past twenty-six years, the ForeignExchange Committee, composed of represen-tatives of major financial institutions, has met todiscuss technical issues and best practices ofthe FX and international money markets. Inpartnership with our colleagues in the FederalReserve Bank of New York, the ForeignExchange Committee has served as an impartialforum for the exchange of knowledge and infor-mation among leading currency practitioners—all with a view to forging a collective vision ofthe ethics, standards, and practices that webelieve would best serve an efficient FX market.

Throughout my involvement with theorganization, I have been consistentlyimpressed by the diversity of views held byCommittee members and the vigorousexchange of views taking place under itsauspices. I can assure you that when theCommittee decides upon a technicalrecommendation or urges a best practice,that consensus view has been well earnedthrough vigorous discussion and an honestexchange of different perspectives. I knowthat many of you know my currentCommittee colleagues and those that haveserved in prior years, and I doubt you wouldconsider any of them shy!

Over the years, the Committee has helpedour industry evolve through many tumultuousphases in the growth of financial markets,including the rocky road to European currencyunion; the interplay between currency, fixedincome, and equity markets; market disloca-tions associated with dramatic currencymovements in Europe, Asia, and elsewhere; the

Russian debt crisis; the collapse of LTCM (Long-Term Capital Management); the exponentialrise in currency and interest-rate derivatives; theproliferation of hedge funds; the dramaticexpansion of electronic FX trading; unnamedFX trading; and many other issues.

Throughout, our intention has been toensure a smooth-functioning and growingcurrency market. This goal is particularlyimportant because as finance has globalizedand capital has moved with steadilyincreasing volume and speed, the FX markethas become mission-critical infrastructurefor every other kind of securities market.

The Committee is a voluntary association—our purpose is to make recommendations—and we have no enforcement mandate. Oneof the Committee’s key goals is providingleadership on issues of concern toorganizations involved in the wholesaleforeign exchange market. It is true thatgovernmental banking supervisors andregulators often look to the Committee’s bestpractice guidance when reviewing firmsinvolved in trading foreign exchange.Thankfully, supervisory enforcement is there-fore not part of the Committee’s mandate.

We think we have a full agenda simplygathering and disseminating the collectivewisdom of the world’s most important FXpractitioners. To this end, the Foreign ExchangeCommittee has produced many helpful policyletters, memoranda, papers, and substantialannual reports and documents, most of whichare available on our website, which you canfind at the site of the New York Fed at<www.newyorkfed.org/fxc>.


Among the Committee documents that areregularly updated as the FX industry evolves, Iwill highlight three.

Guidelines for Foreign Exchange TradingActivities seeks to provide all participants in thewholesale foreign exchange community witha common set of best practices that will assistthem in the conduct of their businesses.Through this document, the Committee seeksto promote market efficiencies and transpar-ency and to facilitate informed decision making.

Guidelines covers trading issues such astime-proven best practices for trading staff;safeguards for trading with electronic brokers;procedures for special trading practices,including historical rate rollovers, stop-lossorders, and switches; and solutions for trade-related problems.

With regard to FX sales, the documentstresses the critical importance of “know yourcustomer” (KYC) duties—for example, theavoidance of transactions with unnamed andundisclosed counterparties and diligence inidentifying suspicious customer activities,inappropriate customer dealings, andevidence of money laundering.

Guidelines for Foreign Exchange TradingActivities provides suggestions on the effectivemanagement of the risks facing every FX tradingbusiness—including market, credit, settlement,liquidity, operations, and legal risk. Finally, thedocument emphasizes the importance ofongoing staff training.

Another important Committee documentis the Management of Operational Risk inForeign Exchange—a comprehensive text thatdetails sixty best practices to help manage therevolutionary changes under way in the FXmarketplace.

This checklist of best practices seeks to aidindustry leaders as they develop internalprocedures and guidelines aimed at improvingrisk management—including direct or indirectloss resulting from inadequate or failed internalprocedures, staffing, and systems or fromexternal events. Often, operational risk in theFX context centers on transaction processing,product pricing, and valuation—all of whichcan hurt a firm’s profitability.

The best practices cited in the document aredesigned to mitigate some of the operationalrisks common to FX in the belief that ifindividual market participants take advantage ofthe Foreign Exchange Committee’s counsel, wecan reduce systemic risk in the market overall.We encourage FX market participants to usethis checklist to periodically review theintegrity of their own operations.

The best practices are grouped intosections based upon the seven steps of the FXtrade process flow: pre-trade preparation,trade capture, confirmation, netting, settle-ment, nostro reconciliation, and accounting/financial control processes.

In recognition of the growing variety ofinstitutions involved in foreign exchangetoday, I would draw your attention to oneadditional document, Foreign ExchangeTransaction Processing: Execution-to-SettlementRecommendations for Nondealer Participants.


This text seeks to share the experience offinancial institutions regularly engaged in theFX market with nondealer institutions thatmay participate in the FX market on a moreoccasional basis. The document highlightstwenty-two issues related to risk awarenessfor nondealers such as asset managers andhedge funds.

Among the specific topics addressed areKYC concerns and counterparty identifi-cation, electronic trading, segregation ofduties, timely trade entry, trade confirmation,and prompt resolution of confirmationdiscrepancies.

This document strongly urges that firmscontinually evaluate their trading procedures,trade capture systems, accounting policies,operational procedures, and risk managementtools. It urges the establishment of codes ofconduct in conformity with applicable lawsand industry conventions, as well as thedocumentation and periodic update ofpolicies and procedures.

These documents represent the collectedwisdom of hundreds of FX professionals whohave guided our industry for a quarter century. Idon’t think they contain all the answers, and Icertainly don’t think that a group of us meetingat the New York Fed have either the right orinclination to suggest that FX practitioners allover the world adopt them word for word.

But I think that these guidelines—and othersproduced by partner Committees in othermarkets—can serve as a vital blueprint forother industry centers, particularly inemerging economies where cross-border

investment and trade are booming and wherethe currency trade lacks the depth andexperience of leading currency centers suchas New York and London.

Take these documents,extract their essence,adapt them to your local circumstances andneeds, and by all means feel free to engage inour collective conversation so that we candevelop our best practices on a global level toour mutual benefit.

Foreign Exchange Committee AgendaThe Foreign Exchange Committee agenda forthe coming years is as challenging as it hasbeen at any time in our history. In response tothe Wooden Nickel events, today we haveissued an updated letter advising against thepractice of points. This document can befound on our website as well as the associatedupdates to the Guidelines for Foreign ExchangeTrading Activities. We are also looking at theincreasingly blurred line between wholesaleand retail foreign exchange.

In this connection, we are looking moreclosely at prime brokerage and at the use ofwhite labeling of electronic FX. For example,in a dealing chain that involves a primary FXbank, secondary banks and/or prime brokers,currency overlay managers, and end-users,who exactly has KYC responsibility?

In addition to exploring these ethicalissues, we are continuing work on some post-9/11 initiatives such as contingency planningand operational continuity issues. We are alsocontinuing our collaboration with the Bank ofEngland’s Foreign Exchange Joint Standing


Committee and with sister FX committees inSingapore, Canada, Europe, and Japan withregard to unnamed trading activity as it relatesto fund managers.

The Foreign Exchange Committee isworking with the Foreign Exchange JointStanding Committee in the United Kingdomto produce an FX volume survey twice a year,given that the universally used turnover surveyfrom the Bank for International Settlements isupdated only triennially.

Our Operations Managers Working Group isreviewing the benefits of electronic affirmationsand confirmations. The Committee is workingwith our colleagues in the Financial MarketsLawyers Group on exotic option definitionsand on Asian non-deliverable foreignexchange transactions.

Finally, the Foreign Exchange Committee isundertaking a comprehensive communicationsand outreach program. We are determined totake our message of best practice, ethics, andgood governance as far as we can throughoutthe global currency market. To be frank, we’vebeen better at developing our intellectualassets than in communicating them. So we arecommitted to making the industry aware ofthese standards so that no one can deviatefrom them while claiming that they did notknow of their existence.

Self-Regulation and a HealthyMarketplaceThe foreign exchange marketplace today isundergoing perhaps its most dynamic andrapid evolution. At the same time, it is playing

a more critical role in global capital marketsand world trade than ever before. Not-withstanding trading errors and lapses of pro-fessional ethics, I would make the case thatthis diverse, noncentralized, self-regulatingmarketplace has evolved and flourished aswell as any capital market on earth.

Foreign exchange is at the heart of aglobalized world in which cross-border tradeand investing are critical to fostering high ratesof economic growth, sustainable investmentreturns, and the efficient worldwide allocationof capital and labor. This is a huge responsibilityand, for the most part, I think we have lived upto the challenges that we have faced.

Because the FX marketplace is one of theleast regulated on earth, interest in introducingregulation to the market is perennial. But thereare very good reasons why this idea has nevermoved beyond the talking stage.

If It Ain’t Broke, Don’t Fix ItThe FX market has withstood the dynamicchanges of modern markets well. Currencypractitioners, together with central banks,have provided abounding liquidity to othercapital markets and to world trade; stimulatedthe emergence of new technologies, riskapproaches, products, and services; andensured a smooth market environment for thegreatest boom in cross-border finance thatthe world has ever seen.

Volumes have grown exponentially. Marginsare razor-thin. Competition is vigorous. Everyenterprise on earth—from tiny factories toglobal asset managers—can obtain the


currency they need when and how they needit at transparent prices. These are theattributes of a thriving marketplace.

The Probity, Efficiency, and Ethics ofthe Foreign Exchange MarketplaceCompare Favorably with Those ofOther Financial MarketsYes, we have endured occasional difficulties.But we have never seen anything like the sys-tematic erosion of standards and practices thatwe’ve been reading about in world equitymarkets in the wake of the boom and bust ofthe 1990s. Equity markets are highly intrusivelyregulated. And yet they are far from immunefrom the ethical lapses, mispricing of assets,and fraud that have resulted in disgorgement,fines, and penalties and cost leading financialfirms and their customers huge sums of money.

The mutual fund marketplace here in theUnited States—arguably the most heavilyregulated major market in the entire financialservices industry—likewise appears to haveallowed the widespread embrace of insiderinformation, illegal trading, indefensiblesales practices, and the systematic abuse ofsmall investors in the interest of personal gainon the part of traders, fund managers, andeven the executive leadership of some of thebest-known brands in the fund managementindustry.

My intention here isn’t to disparage thevalues of other capital markets. But when Iread about the supposedly chronic absenceof ethical practices in the currency arena, Ican’t help but reflect that the FX marketplaceis arguably the most transparent, efficient,

appropriately priced, and liquid financialmarket on earth.

I think that we’re largely doing the rightthings and delivering a vital service. Ofcourse, it is incumbent on us to keep it thatway. And the Foreign Exchange Committee,together with central banks and others in ourindustry, is working continually to maintainhigh standards, communicate them to newentrants in our industry, and incorporate themin the DNA of our market culture.

Regulating the Foreign ExchangeMarket May Well Be ImpossibleIn truth, the FX market may be unregulatable.It is governed well and it is ably supervised.But the currency market is, by definition, atransnational market. One hundred percentof our volume moves across borders. Theonly conceivable regulatory approach wouldinvolve a supranational agency governed by aboard of world central banks attempting toimpose standards and practices that wouldbe appropriate for every economy on earth.

Were we to achieve a globally imposed setof standards and practices, the inevitableresult would be a regulatory regime basedupon the lowest common denominator ofmarket practice. I submit that it woulddecidedly not be in the interest of the globaleconomy for the deepest, most liquid marketon earth to actually reduce the quality of itsworking infrastructure.

Imposing a regulatory compliance regimeon the market would unavoidably lead to anincreased cost of doing business, which would


in turn expand trading spreads and increaseprofit margin requirements with negativeconsequences for every other capital marketand for the global economy as a whole.

Self-governance places responsibility forthe integrity of our market squarely on ourshoulders. In the context of the Basel IIaccords, this is doubly important. If ethicallapses and bad practice raise the risk premiumof our market, our parent institutions will haveno choice but to increase our capital-adequacy allocations, with unpredictableconsequences.

FX might suddenly change from a relativelylow-overhead, “lean and mean” industry withminimal capital requirements into an expensiveand less efficient market that would drive firmsout of the trade, thereby reducing liquidity,efficiency, and trading diversity. The smotheringof this market with intrusive, burdensomeregulatory requirements might have a corrosiveeffect on every other financial market, raisingthe cost of global trade across the board.

In other words, if we don’t keep our housein order, we may witness the permanentalteration of the entire economic predicate ofour industry.

The Trust PremiumLet me conclude by reiterating the notion thattrustworthy business practices, defensibleand transparent dealings, and the like have areal value in the marketplace.

As Fed Chairman Alan Greenspan has oftennoted, it is incumbent on corporate officersand senior managers to shoulder responsibility

for operating their companies in the best long-term interest of their shareholders throughbusiness practices that will be respected andrewarded in the marketplace.

Speaking before the 2003 Conference onBank Structure and Competition, ChairmanGreenspan stated: “It is hard to overstate theimportance of reputation in a marketeconomy. To be sure, a market economyrequires a structure of formal rules . . . butrules cannot substitute for character.”Chairman Greenspan described corporatereputations as having “an exceptionallyimportant market value that in principle iscapitalized on a balance sheet as goodwill.”

Chairman Greenspan went on to say: “Weshould not be surprised then to see areemergence of the market value placed ontrust and personal reputation in businesspractice. After the revelations of corporatemalfeasance, the market punished the stockprices of those corporations whose behaviorshad cast doubt on the reliability of theirreputations. Recent allegations on Wall Street ofbreaches of trust or even legality, if true, couldbegin to undermine the very basis on which theworld’s greatest financial markets thrive. Guiltyparties should be expeditiously punished.Some practices and rules have outlived theirusefulness and require updating. But in so doing,we need to be careful not to undermine theparadigm that has so effectively governedvoluntary trade. Rewriting rules that have servedus well is fraught with the possibility for collateraldamage. I hope and anticipate that trust andintegrity again will be amply rewarded in themarketplace as they were in earlier generations.”


I believe that these ideas are doublyimportant in an unregulated over-the-counterfinancial market such as our own. For theforeign exchange market, the counterparties’word is the essential bond that ties togetherthe entire marketplace. It is in the best interestof us all to ensure that we can promise a highstandard of conduct to the other capitalmarkets and global corporations that dependon our services. In this way, the foreign

exchange industry—and the firms andindividuals that compose it—can earn the trustpremium that Chairman Greenspan implies.

Foreign exchange markets are the centralnervous system of the global economy. It isup to us to ensure that these markets functionin a trustworthy and sustainable manner forthe benefit of people all over the world.


Documents

Ethics, Best Practices, and Self-Regulation: A …...ethics matter. 103 A Crossroads for the Global Foreign Exchange Market Ethics, Best Practices, andSelf-Regulation: Second, I’d