LONDON, April 26 (Reuters) - The Bank of England set out new guidelines on Wednesday aimed at improving standards in British government bond and money markets, including a crack down on dealers profiting from clients’ confidential information.
The central bank said the code of conduct was not legally binding, but hoped that firms that did not sign up to it would be shunned. It said it would use adherence to the code as a guide to whether it judged financial firms to be well-run.
The BoE’s code of conduct covers London money markets, including sterling and foreign currency deposits, repo markets and securities lending. Separate global codes cover foreign exchange and precious metals trading.
Wholesale financial markets have historically been lightly regulated, on the basis that they involve experienced traders dealing with each other.
But the Bank of England and market participants have increasingly viewed this as inadequate, especially since dealers were convicted for rigging market interest rates such as LIBOR.
In a document explaining the code, the BoE said “it is voluntary, not law or regulation”.
But it said it expected managers at banks, companies and other financial institutions that it regulated to take notice of the code, and ensure their staff adhered to it.
“The implication is that those participants that ... continue to follow bad or unfair practices will subsequently find it very hard to find market counterparties with whom to deal,” the BoE said.
The central bank gave numerous examples of what the code deemed bad practice. This included lending a client’s securities without permission, and secretly passing on information about one client’s trades to another to win business.
“In the past more information in some circumstances may have been given than was appropriate,” the BoE said.
“Any market colour provided must be on an aggregate basis and anonymised, so that no specific trades can be identified. Overall, market participants can learn of trends in the market without knowing about specific trades,” it added.
The BoE gave a detailed example, involving a dealer suggesting a client might want to enter into a repo arrangement to buy a specific gilt that another client was seeking, in order to make a profit.
It also discouraged lending of securities to people wanting voting rights, or repo arrangements designed to create an artificial scarcity of a particular bond.
Reporting by David Milliken; editing by Richard Lough