Ethical Conduct and Market Practice
The Ethical Conduct and Market Practice domain tests the standards expected in wholesale trading: the ACI Model Code, the FX Global Code, market-abuse rules and the handling of conflicts. Questions often present a scenario and ask what a dealer should have done.
The codes
- The ACI Model Code sets ethical and professional standards for FX and money-market practitioners.
- The FX Global Code contains 55 principles across ethics, governance, execution, information sharing, risk management and confirmation/settlement. It is principles-based and sits alongside local regulation.
Prohibited conduct
- Front running: trading ahead of a known client order to profit from its market impact.
- Banging the close: trading to move a benchmark fix.
- Collusion or information sharing that distorts prices.
- Misuse of confidential information.
- Wash trades and fictitious trades that create false volume.
- Personal account dealing that conflicts with client orders.
Permitted but controlled
Pre-hedging is not banned outright; it must be disclosed, proportionate and managed under written policies. Last look must be disclosed and must not be used to exploit clients. Gifts and entertainment must be recorded and kept within limits.
Worked example
A dealer receives a large client order to buy EUR/USD. Before executing, the dealer buys for the bank's own book, and the client pays a worse price. This is front running: the dealer used confidential order information for firm gain. The correct action is to execute the client order first, or to manage any pre-hedging under a disclosed policy. The dealer should also escalate the conflict.
Traps that cost marks
- Saying all pre-hedging is prohibited; it is permitted under conditions.
- Treating "everyone does it" as a defence.
- Ignoring the fixing window when judging benchmark trades.
- Confusing a gifts breach with market abuse; they are different regimes.
- Assuming a disclosed last-look policy makes any use of the window acceptable.