For principals and broking firms in the wholesale markets

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This code has been drawn up by market practitioners in the United Kingdom representing principals

and brokers in the foreign exchange, money and bullion markets to underpin the professionalism and

Products (NIPs), specifically the sterling, foreign exchange and bullion wholesale deposit markets,

and the spot and forward foreign exchange and bullion markets.

The Financial Services Authority's (the FSA) Handbook contains rules and guidance potentially

relevant to conduct in the wholesale markets in investment products, including Principles for

Business, which are fundamental obligations for all firms under the regulatory system, and certain

provisions of the New Conduct of Business Sourcebook, Senior Management Arrangements, Systems

and Controls Sourcebook, and Client Assets Sourcebook. The products covered by the NIPs Code

are not covered by the Handbook.

The NIPs Code has been drawn up by a wide cross-section of market participants including the Bank

of England and the Financial Services Authority. Its provisions are intended only as guidance on

what is currently believed to constitute good practice in these markets. The Code has no statutory

underpinning except where it refers to existing legal requirements. Those who have prepared the

NIPs Code have sought, where appropriate, to make its provisions consistent with the relevant

parallel provisions in the FSA Handbook, bearing in mind, in particular, that some firms will operate

both in the non-investment and investment product markets.

Management Committee of the London Bullion Market Association

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paragraphs: 1 - 5 Aims and coverage

6 Distribution

7 Compliance and arbitration

8 The Role of the Financial Services Authority

paragraphs: 1 - 10 Responsibilities of the firm

11 - 12 Responsibilities of the employee

13 - 14 Clarity of role of principals

15 - 16 Clarity of role of brokers

17 Preliminary negotiation of terms

18 - 21 Firmness of quotation

22 – 23 Concluding a deal

24 – 26 Passing of names by brokers

27 – 28 Use of intermediaries

29 – 31 Terms and documentation, including Brokers’ Terms and Conditions

32 – 34 Commission/brokerage

35 – 36 Market conventions

37 – 38 Good practices in obtaining data for mark-to-market purposes

39 – 41 The General Principles

42 Acquisition of Data

43 Supply of Data by Brokers

paragraphs: 1 - 8 Know your counterparty

9 Fraud

10 Dealing with unidentified principals

11 - 14 Dealing mandates

15 - 19 Confidentiality

20 - 26 Taping

27 – 29 Use of mobile phones for transacting business

30 - 34 Deals at non-current rates

35 After-hours dealing

36 Stop-loss orders

37 - 39 Conflicts of interest: dealing for personal account

40 - 41 Conflicts of interest: deals using a connected broker

42 - 43 Marketing and incentives

44 - 47 Entertainment and gifts

48 Gambling

49 Drug and alcohol abuse

paragraphs: 1 Confirmation procedures

2 – 3 Oral deal checks

4 – 14 Written/electronic confirmations

15 - 20 Payment/settlement instructions

34 - 37 Settlement of differences

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professionalism and the maintenance of the highest standards of business conduct. All those operating in these

markets share a common interest in their health and in maintaining the established exacting standards. This

Code is intended to help underpin these standards.

the market. The spirit of the Code applies equally to business transacted via electronic or traditional media.

Principals include firms authorised under the Financial Services and Markets Act 2000 and similar firms

operating in the United Kingdom under the EU passport arrangements, as well as other companies and

institutions, local authorities and other public bodies which operate in the wholesale markets covered by the

NIPs Code.

Corporate Treasurers, British Bankers’ Association, Building Societies Association, Chartered Institute of Public

Finance and Accountancy, London Bullion Market Association, London Investment Banking Association and

the Wholesale Market Brokers’ Association.

Standing Committee, the Sterling Money Markets Liaison Group and the Management Committee of the London

Bullion Market Association. It will continue to be kept under review in the light of market developments.

these are defined as investments under the Financial Services and Markets Act (2000). The Code does, however,

cover wholesale deposits that are specified as investments in the Regulated Activities Order, as well as wholesale

deposits that are not so specified.

the Financial Services Act (1986). However, as explained by the Securities and Investments Board in consultation

document 89, issued in August 1995, certain margined products do constitute investment business within the

meaning of the Financial Services Act (1986); and the treatment of these products is the same under the Financial

Services and Markets Act (2000).

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accordance with the Code and that it is available from the Bank of England’s website

paper form but may be printed from the website.

to the Code, it should approach the counterparty and, where appropriate, seek remedial action. Matters of

currently believed to constitute good market practice. Deposits which are investments as specified in the

Regulatory Activities Order are not covered by the NIPs Code. The FSA’s Handbook sets out requirements for

authorised firms doing business within the scope of FSA regulation. In the context of wholesale markets the

following may be particularly relevant: the Principles for Business, especially Principle 1 (integrity), Principle 2

(skill, care and diligence), Principle 5 (Market Conduct), and Principle 7 (Communication with clients); certain

provisions in the New Conduct of Business Sourcebook (COBS) in particular those applicable to firms dealing

with eligible counterparties; provisions in the Senior Management Arrangements, Systems and Controls

Sourcebook (SYSC) relating to conflicts of interest and certain provisions of the Client Assets Sourcebook

(CASS) which may be relevant to eligible counterparty business. The NIPs Code has no statutory underpinning

except where it refers to existing legal requirements but non-compliance (depending on the circumstances,

seriousness, frequency and duration of the incidents) may raise issues such as the integrity or competence of the

firm, which are relevant to the FSA’s authorisation requirements. The FSA has contributed to the development

of this code and expects management of authorised firms to take due account of it when conducting business in

products covered by the Code.

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professional reputation for the wholesale markets in the United Kingdom.

manner and undertake transactions in a way that is consistent with the procedures set out in this Code.

- ensuring that any individual who commits the firm to a transaction has the necessary authority to do so;

- ensuring that employees are adequately trained in the practices of the markets in which they deal/broke; and are

aware of their own, and their firm’s responsibilities. For example, inexperienced dealers should not rely on a

- ensuring staff are made aware of and comply with any other relevant guidance that may from time to time be

issued, which supplements or replaces this Code, and;

- ensuring that employees comply with any regulatory requirements that may be applicable or relevant to a

firm’s activities in the wholesale markets.

of the precise nature of the firm’s liability for business to be conducted, including any limitations on that liability

forward foreign exchange transactions. Where a counterparty is not currently able to use such services, it should

be encouraged to consider using them; and in any case all market participants should aim to ensure that the

intraday and overnight settlement risk exposures they incur are adequately measured and managed.

wholesale market transactions, and take measures either to eliminate these conflicts or control them so as to

ensure the fair treatment of counterparties.

undertaken requires the assessment of creditworthiness. Before dealing with another principal for the first time

in any product covered by this Code, firms should ensure that appropriate steps are taken (see paragraphs 25 to

26 in this section and 1 to 8 on Controls in this Code).

e.g. subsidiaries.

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responsibilities name-passing brokers have in this area; in particular, banks (and others that use brokers) should

professional advice. All principals should accept responsibility for entering into wholesale market transactions

and any subsequent losses they might incur.

be construed as having misled counterparties about the limited role of brokers (see paragraphs 15 and 16 of this

section of the Code). Failure to be vigilant in this area may adversely affect the reputation of the broking firm

itself.

provide misleading information or misrepresent the nature of any transaction in any way. Dealers and brokers

should disclose:

- the identity of the firm for which they are acting, and its role, to their counterparties/clients. This is

particularly important, for instance, where an individual dealer acts for more than one company, or in more than

one capacity;

- the products in which they are proposing to deal;

- facts believed to be material to completing a specific transaction before the deal is done, except where such

disclosure would reveal confidential information about the activities of another firm. Unless specifically asked

for more information or clarification, a dealer as a principal will assume his counterparty has all the necessary

information for this decision making process when entering into a wholesale market transaction.

client over another, irrespective of what brokerage arrangements exist between them and the broking firm.

to assess the creditworthiness of its counterparties, or potential counterparties, whether dealing direct or through

a broking firm. Principals should decide what credence, if any, is given to any information or comment provided

by a broker to a dealer. It is for each principal to decide whether or not to seek independent professional advice.

account. If so, such agents should:

- always make absolutely clear to all concerned the capacity in which they are acting (e.g. if they also act as

principal or broker);

- declare at an early stage of negotiations the party for whom they are acting. It may be suitable to set out this

relationship formally in writing for future reference;

- ensure that all confirmations make clear when a deal is done on an agency basis;

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- when acting as agent for an unregulated principal, make clear at an early stage this qualification to potential

counterparties; and include this on confirmations of transactions.

- bring together counterparties on mutually acceptable terms and pass names to facilitate the conclusion of a

transaction;

- receive payment for this service in the form of brokerage fees (except where a prior explicit agreement between

the management of all parties to a deal provides otherwise);

- are not permitted, even fleetingly, to act as principal in a deal, or to act in any discretionary fund management

upon to give advice or express opinions, usually in response to requests from individual dealers. While brokers

should be mindful of the need not to reveal confidential information about the market activities of individual

clients, there is no restriction on brokers passing, or commenting on general information that is in the public

domain. Equally, there is no responsibility upon a broker to volunteer general information of this type. Where

information is sought or volunteered, individual brokers should exercise particular care. For instance, brokers do

not have sufficient information to be qualified to advise principals on the creditworthiness of specific

counterparties and to do so is not their role.

finding a counterparty for matching deals or the ability to execute an associated transaction. For instance

principals may quote a rate which is ‘firm subject to the execution of a hedge transaction’. For the sake of good

order, it is important that firms complete deals as quickly as possible; the onus is on both sides to keep each

other informed of progress or possible delays. If a principal’s ability to conclude a transaction is constrained by

other factors, for example opening hours in other centres, this should be made known to brokers and potential

counterparties at an early stage and before names are exchanged.

committed to deal at that price (or rate) in a marketable amount provided the counterparty name is acceptable. In

order to minimise the scope for confusion where there is no clear market convention, dealers quoting a firm price

money. In such transactions, brokers should make clear to the relevant counterparties that they are acting as

principal.

any of the financial products described falls outside the scope of this code and, if it constitutes investment business

within the terms of the Financial Services and Markets Act 2000, should be in accordance with that Act.

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(or rate) should indicate the length of time for which the quote is firm and should also specify any other

conditions attached to the quote.

a price given to a broker is good only for a short length of time. However, this practice would be open to

misunderstandings about how quickly a price is deemed to lapse if it were adopted when dealing in generally

less hectic markets, for example, the forward foreign exchange or deposit markets, or when market conditions

are relatively stable. Since dealers have prime responsibility for prices put to a broker, the onus in such

circumstances is on dealers to satisfy themselves that their prices have been taken off, unless a time limit is

placed by the principal on its interest at the outset (e.g. ‘firm for one minute only’). Otherwise, the principal

should deal with an acceptable name at the quoted rate in a marketable amount.

whether their interest at particular prices (or rates) is still current. They should also do so when a specific name

and amount have been quoted.

practitioners. If a broker is quoting on the basis of small amounts or particular names, the quotation should be

qualified accordingly. Where principals are proposing to deal in unfamiliar markets through a broker, it is

recommended that they first ask brokers what amounts are sufficient to validate normal market quotations. If

their interest is in a smaller amount, the principal should specify this when initially requesting a price from or

offering a price to the broker.

should normally consider themselves bound to a deal at the point where the terms have been agreed without

qualification. Oral agreements are considered binding; the subsequent confirmation is evidence of the deal but

good practice. In order to minimise the likelihood of disputes arising once documentation is prepared, firms

should make every effort to agree all material points quickly during the oral negotiation of terms, and should

include these on the confirmation. Any remaining details should be agreed as soon as possible thereafter.

made aware immediately it has been dealt upon. As a general rule a deal should only be regarded as having been

‘done’ where the broker’s contact is positively acknowledged by the dealer. A broker should never assume that

a deal is done without some form of oral acknowledgement from the dealer. Where a broker puts a specific

proposition to a dealer for a price (e.g. specifying an amount and a name for which a quote is required), the

dealer can reasonably expect to be told almost immediately by the broker whether the price has been hit or not.

counterparties with whom, for whatever reason, they would be unwilling to do business (referring as necessary

to particular markets or instruments). At the same time brokers should take full account of the best interests and

any precise instructions of the client.

brokers on any particular features (maturities etc.) or types of counterparty (such as non-financial institutions)

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which might cause difficulties. In some instruments, principals may also wish to give brokers guidance on the

extent of the price differentiation across broad categories of counterparties. Where a broker is acting for an

institution which is not supervised, he should disclose this fact as soon as possible; the degree of disclosure

required in such a case will usually be greater. For instance, credit considerations may require that such names

be disclosed to a principal first in order that the principal may quote a rate at which it is committed to deal.

Equally, disclosure of difficult names may be necessary since this may influence the documentation.

to turn down a name wishing to take deposits; this could therefore require predisclosure of the name before

closing the deal. Once a lender has asked the key question ‘who pays?’, it is considered committed to do

business at the price quoted with that name, or an alternative acceptable name if offered immediately. The name

of a lender shall be disclosed only after the lender has accepted the borrower’s name. Conversely, where a

borrower is taking secured money there may be occasions when it will wish to decline to take funds through a

broker, when the lender’s name is passed.

most obviously where a name switch is required because one counterparty is full of another’s name but is

prepared to deal with a third party. Any fees involved in transactions involving intermediaries should be

explicitly identified by the broker and shown on the relevant confirmation(s).

this may take longer at certain times of the day; or if the name is a particularly difficult one; or if the deal is

larger than normal. It is certainly not good practice to leave a deal overnight without acceptable names having

been passed.

standard conditions and undertakings (which typically will take the form either of signed Master Agreements

exchanged between the two parties or of standard terms). Principals should have procedures in place to enable

documentation to be completed and exchanged as soon as possible.

as possible. In some markets, documentation should be in place before any deals are undertaken. More

generally, however, the aim should be for documentation to be in place within three months of the first deal

being struck. Failure to agree documentation within this timescale should cause management to review the

additional risks that this might imply for any future deals with the counterparty concerned. Factors which may

influence management’s views include whether they can take comfort on their legal position from the mutual

confirmation of terms with a particular counterparty; or where the delay is in putting in place multiple master

agreements for products that are, in the interim, subject to previously agreed documentation.

consent. These should be clearly stated before dealing. Firms should make clear at an early stage if they are not

intending to use standard terms documentation. Where changes are proposed these should also be made clear.

Some outstanding transactions might still be subject to old documentation (e.g. the 1987 ISDA) that results in

one-way payment provisions. The use of such provisions is not recommended. Banking supervisors worldwide

have indicated that such transactions will not be eligible for netting for capital adequacy purposes.

agreed by the directors or senior management on each side. Any variation on a particular transaction from those

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previously agreed brokerage arrangements should be expressly approved by both parties and clearly recorded on

the subsequent documentation; this should be the exception rather than the rule. Brokers should never pay cash

to a principal as an incentive to use its services (see also section titled “Marketing and Incentives”, paragraphs

42 to 43 on Controls in this Code)).

circumstances when the broker and principal may agree on an acceptable net rate; if so it is important that the

broker subsequently informs the principal how that rate is divided between payments to counterparties and

upfront commission. In such cases all parties need to be quite clear that this division will be determined no later

than the time at which the deal is struck, and that a record is kept.

paid promptly. The Derivatives and Foreign Exchange Joint Standing Committees wrote to principals in United

Kingdom in May 1999 emphasising the importance of prompt payment.

(including retraining if necessary) to alert individual dealers and brokers who act in different markets (or move

from one market to another) both to any differences in terminology between markets and to the possibility that

any particular term could be misinterpreted. In those markets where standard terms and conditions have been

published individual dealers and brokers should familiarise themselves with the definitions they contain.

market conventions regarding brokerage, are set out in Annex 1. Similarly, market conventions for foreign

currency wholesale deposits and spot and forward foreign exchange are set out in Annex 2, and market

conventions for bullion markets are set out in Annex 3.

marking to market OTC transactions and for those brokers who may be supplying this data. A number of market

participants have asked for clarification of where responsibilities lie, and of what is good, or sound, practice in

the acquisition and supply of such data. It is clear that there is a wide range of practices among participants; this

guidance is intended to outline the main principles which participants should consider, rather than to prescribe

specific methods.

mark-to-market trading positions. For many such positions, quoted prices will be the best guide to a fair

valuation.

positions by the middle and/or settlement office.

they do so, this service should be governed by the same considerations as apply to other relations between

brokers and principals as described in paragraphs 13 to 16 in this section of the Code. Firms may enter into

specific bilateral agreements about the reliance to be placed on any service supplied, but absent these, all

principals are responsible for their own actions.

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following:

of the principal that is independent of the front office.

such as where markets are particularly thin or illiquid, principals may consider exchanging historical data

with other principals.

are measured on a prudent basis.

will often be the most appropriate source, though principals should also consider how these data have been

constructed and what they represent. Are they, for example, the last actual trade and if so how long ago did

it occur? From which market were they obtained and at what time? If the prices are not actual trades on

what basis were they calculated (e.g. interpolation)? What size was the trade representative of? Is this price

based on a liquid market?

detail what data they require. Principals should state the appropriate characteristics on which they want the

estimate to be based e.g. mid-market, indicative or firm prices, close-out prices, the size of deal for which

the price is generally good.

Stating the precise conditions under which the estimates were constructed (mid-market, last trade, size etc.)

They should also ensure that they provide data to principals on a consisten

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