LONDON, April 26 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)