Traders must be clear about what information they can share with others in the market to avoid new rigging scandals, a British industry body said on Friday. The FICC Markets Standards Board (FMSB) proposed guidance on what sort of "market colour", or information, participants can exchange in commodities and fixed income markets in Britain, one of the world's biggest financial centres.
"The question of what information may be shared between participants in these markets is complex and recent conduct events have drawn attention to the risks associated with sharing information in an inappropriate manner," the board said in a statement. The FMSB is an industry body which counts all major global banks among its members, who are normally expected to follow its guidelines.
Banks have been fined billions of dollars for trying to rig currency markets and the Libor interest rate benchmark. The cases threw a spotlight on market colour, or conversations between brokers from different banks over the phone or by email, instant messaging and morning calls.
The FMSB has proposed a "statement of good practice" for public consultation. "The use of and sharing of information within markets is a complex area around which there is significant uncertainty," FMSB Chair, Mark Yallop, said. "This means market participants often avoid sharing any information which can reduce market liquidity; however, sharing of some information is necessary for markets to operate and sharing market colour can in fact make markets operate more efficiently."
Market participants should clearly identify and appropriately limit access to confidential information, and give examples of what can and cannot be included in "market colour" or views on the general state of the market. The aim is to stop traders crossing the line between general comment and giving information that would make it easy to identify a client or provide investment recommendations. The FMSB was set up following a recommendation from Britain's government and markets regulators to help clean up the currency markets after a forex rigging scandal. The consultation ends in August, with final guidelines due to be published shortly afterwards.