NBG Announces FX Market Reform aimed to increase transparency
One of the tasks of the National Bank is to promote the efficient functioning of the foreign exchange market by taking timely and necessary measures. These include a new reform which is aiming at increasing competition in the foreign exchange market, making it easier for non-bank participants to access the interbank FX market, enhance liquidity and improve transparency. The reform includes two important components and is based on international best practice.
The first component of the reform is implementation of principles of the FX Global Code, which was created in 2017 with the participation of the major central banks. Following the principles of the Code, the foreign exchange market operates in more than 50 countries. Commitment of compliance with the terms of the Global Code is acknowledged by the Bank for International Settlements (BIS), the Central Banks of 47 countries, as well as more than 1000 financial institutions and companies globally. These include the central banks and leading banking institutions of the USA, England, Europe, Japan, Canada and Australia.
At the initiative of the National Bank and with the support of the United States Agency for International Development (USAID), international experts conducted trainings for Georgian foreign exchange market participants and helped develop a new regulation - FX market participants conduct rules, based on the core requirements and principles of the FX Global Code.
Both the FX Global Code and the FX market participants' conduct rules aim to increase transparency and competition - establish fair and unbiased conditions for market participants and better protect interests of their customers. In accordance with international best practice, banks will be required to make transparent and publish terms and condition describing full range of FX market services, including fees and other relevant terms on their websites. Process and execute client orders in the best interests of the client and protect their privacy. In order to maintain high standards of operations in the foreign exchange market, banks must adopt appropriate organizational setup and IT infrastructure.
Naturally, the introduction of new approaches is accompanied by relevant infrastructural changes. Therefore, the second component of the reform is the launch of Bloomberg's new trading platform - Bmatch. The Bmatch platform has been operating successfully in more than 20 countries around the world since 2016 and provides automatic matching and execution of matching order. Prior to the trade, the identity of the BID/ASK provider is anonymous, which ensures confidentiality and impartiality. At the same time, counterparty risks in the system are managed through the limits set by the participants, and the execution of concluded transactions is done in accordance with the rules of the National Bank.
The Bmatch platform was launched in Georgia in March 2020 and operates successfully in pilot mode. At this stage, the platform is already used by 15 banks, 4 microfinance organizations, 1 large local company and a foreign investment fund. Importantly, with the implementation of new rules, the platform will become accessible to a wider range of participants. Both banks and companies can trade in the system. In addition, companies will have the choice to either subscribe to the Bloomberg terminal themselves and trade FX directly through it or place orders with the help of the bank. As a result, they will no longer be tied with one bank, but will trade with whole banking community and / or companies that offer them the best price. This ensures greater market concentration, more liquidity and a favorable price.
The FX market participants' conduct rules and the new platform will come into force on October 1, 2020. Until then, banks will have time to create relevant infrastructure, and companies will be able to sign service contracts with one or several banks.