The Fair and Effective Markets Review (the Review) was announced on 12 June 2014 by the Chancellor of the Exchequer and the Governor of the Bank of England (BoE). Chaired by Nemat Shafik (Deputy Governor for Markets and Banking, Bank of England) the aim of the Review is to identify ways to reinforce confidence in the fairness and effectiveness of wholesale financial market activity conducted in the UK, and to influence the international debate on trading practices.

As part of the Review the BoE has published a consultation document seeking respondent’s views on the fairness and effectiveness of the Fixed Income, Currency and Commodities (FICC) markets, and on ways in which, where necessary, that fairness and effectiveness might be improved.

The consultation document is organised around four key themes:

  • section 3 sets out the Review’s perspective on what ‘fair and effective’ means for FICC markets. The Review proposes to define ‘effective’ FICC markets as those which: enable market participants to trade at competitive prices; and allow the ultimate end users to undertake investment, funding, risk transfer and other transactions in a predictable fashion, underpinned by robust infrastructure. The Review proposes to define ‘fair’ markets as those which: have clear and consistently applied standards of market practice; demonstrate sufficient transparency and open access (either directly or through an open, competitive and well-regulated system of intermediation); allow market participants to compete on the basis of merit; and provide confidence that participants will behave with integrity;
  • the Review is seeking views on areas where the fairness and effectiveness of FICC markets may currently be deficient. In its initial discussions the Review has heard a wide range of different perspectives on the underlying factors that may have caused, or facilitated, recent abuses. To give structure to an assessment the consultation document contains a framework set out in Table A which focuses on six potential sources of vulnerability that are considered most critical. Three of these are structural: market microstructure; competition and market discipline; and benchmarks. Three relate to conduct: standards of market practice; responsibilities, governance and incentives; and surveillance and penalties. Section 4 of the consultation document describes this framework in more detail, and provides a high level overview of the remaining sections of the document; and
  • the Review is seeking views on the extent to which the regulatory, organisational and technological changes that have taken place since the financial crisis are likely to address perceived deficiencies in fairness and effectiveness.

In addition the Review is also seeking views on further steps that might be needed to help boost fairness and effectiveness in particular FICC markets.

The deadline for responding to the consultation document is 30 January 2015.

The Review will publish its independent recommendations in June 2015.

View FEMR consultation: how fair and effective are the fixed income, foreign exchange and commodities markets?, 27 October 2014