Retail vs professional: a clash of values

In the professional market, there are unofficial codes of conduct in the form of the ACI Model Code, for example, or just a sort of gentlemen's agreement about how deals are done. These do not exist in the retail market.

The issue was highlighted in the last week or so when a blip on one of the electronic broking systems occurred with a specific currency rate. The rate was used by dealers' pricing engines, which therefore put out a bad rate, that deals would have been based on.

In a professional market, people would say 'Yes, I agree, I stand back from that price, either amend or cancel the trade'. In the retail market, it's less clear, particularly if the trader has got an algorithm that goes out and immediately covers it somewhere else. If you then go to that trader and say that they should act as if that trade didn't really take place, there's a pretty big chance they'd disagree.

As the retail market gets larger and makes up a growing proportion of the foreign exchange market, potential fault lines such as these need to be considered. This is not necessarily to say that regulations should be introduced, but more that education is needed on what is typical practice in the foreign exchange market.

This should hold particularly true for those vendors that are planning to, or do, offer retail clients access to price feeds directly from banks at their wholesale rates.