Circular 22/2017 — Report to the Bank of Mexico Regarding Adherence to the Global Code of Conduct for the Foreign Exchange Market

Wednesday, October 11, 2017 OFFICIAL GAZETTE 1 BANK OF MEXICO CIRCULAR 22/2017, addressed to Credit Institutions, Brokerage Houses, Exchange Houses, and other Intermediaries that are part of Financial Groups, regarding the Report to the Bank of Mexico concerning adherence to the Global Code of Conduct in the celebration of foreign exchange operations.

There is a logo at the margin, which says: Bank of Mexico.

CIRCULAR 22/2017 TO CREDIT INSTITUTIONS, BROKERAGE HOUSES, EXCHANGE HOUSES AND OTHER INTERMEDIARIES THAT ARE PART OF FINANCIAL GROUPS:

SUBJECT: REPORT TO THE BANK OF MEXICO CONCERNING ADHERENCE TO THE GLOBAL CODE OF CONDUCT IN THE CELEBRATION OF FOREIGN EXCHANGE OPERATIONS.

The Bank of Mexico, in order to ensure the sound development of the foreign exchange market in Mexico and as part of the effort of the Bank for International Settlements' collaboration group for the development of the Global Code of Conduct for the Foreign Exchange Market of which it is a part, recognizes the importance of promoting that entities, when celebrating foreign exchange operations, adhere to the best standards of conduct. For these purposes, it has considered it convenient to establish the procedure that such entities must follow to inform this Central Institute of their determination to adhere or not to the Global Code of Conduct, as well as to limit the celebration of their foreign exchange operations only with those entities that have adhered to the aforementioned Global Code of Conduct for the Foreign Exchange Market.

For the above, based on articles 28, sixth and seventh paragraphs, of the Political Constitution of the United Mexican States, 24 and 32, of the Bank of Mexico Law, 9 of the Organic Law of National Financial Institutions, 6 of the Organic Law of the Federal Mortgage Society, 9 of the Organic Law of the National Savings Bank and Financial Services, 9 of the Organic Law of the National Foreign Trade Bank, 10 of the Organic Law of the National Bank of Public Works and Services, 8 of the Organic Law of the National Bank of the Army, Air Force and Navy, 19 of the Organic Law of the National Financial Development Bank for Agriculture, Rural, Forestry and Fisheries, 22 of the Law for Transparency and Ordering of Financial Services, 4, first paragraph, 8, fourth and seventh paragraphs, 10, first paragraph, 12, first paragraph, in relation to 19 Bis, fraction V, and 14 Bis, first paragraph, in relation to 17, fraction I, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Directorate of Central Bank Operations and the General Legal Directorate, respectively, as well as Second, fractions VI and X, of the Agreement on the Affiliation of the Administrative Units of the Bank of Mexico, has resolved to issue the following:

RULES APPLICABLE TO THE REPORT OF PARTICIPANTS TO THE BANK OF MEXICO CONCERNING ADHERENCE TO THE GLOBAL CODE OF CONDUCT IN THE CELEBRATION OF FOREIGN EXCHANGE OPERATIONS

CHAPTER I PRELIMINARY PROVISIONS

1a. Object.- These Rules aim to establish the mechanism to which Entities must be subject to inform the Bank of Mexico of their determination to adhere or not to the Global Code of Conduct.

2a. Definitions.- For the purposes of these Rules, the following shall be understood:

I. Global Code of Conduct: a compilation of global principles of good practices in the wholesale foreign exchange market, whose Spanish translation is attached to these Rules as Annex 1, developed by the Foreign Exchange Working Group (FXWG, in English) of the Bank for International Settlements (BIS, in English), as made known to the general public on May 25, 2017, in order to promote a robust, fair, liquid, open and adequately transparent foreign exchange market, in which the diversity of participants in that market, backed by resilient infrastructures, are able to conduct their business reliably and effectively at competitive prices that reflect available market information and in a manner consistent with acceptable standards of conduct.

II. Counterparties: legal persons, other than the Entities, with which these celebrate any of the Foreign Exchange Operations, or who have any participation in the formalization of the Foreign Exchange Operation.

III. Foreign Exchange: the United States dollar, as well as any other freely transferable and immediately convertible currency to the aforementioned currency.

IV. Entities: credit institutions, brokerage houses, exchange houses, money transmitters, as well as any other financial intermediary when they are part of financial groups.

V. Foreign Exchange Operations: the purchase, sale, receipt of bank deposits, financial derivative operations, operations with credit instruments, denominated in Foreign Exchange, execution of reference exchange rates, services related to their execution, as well as any other service related to Foreign Exchange that Entities perform on their own account or on behalf of third parties in terms of applicable provisions.

The terms mentioned above may be used in singular or plural, without this implying a change in their meaning.

3a. Report to the Bank of Mexico.- Each Entity that celebrates Foreign Exchange Operations must inform the Bank of Mexico of its determination to adhere or not to the Global Code of Conduct. To this effect, Entities must submit to their respective boards of directors or administrative bodies of a similar nature the decision to adopt the Global Code of Conduct.

The Entity referred to in the previous paragraph must send a communication in writing addressed to the National Operations Management, in a format substantially equal to the one attached to these Rules as Annex 2, of which a copy must be sent to the Mexican Foreign Exchange Market Committee, and which must include:

A. Its determination to adopt the Global Code of Conduct, which must be accompanied, among other aspects, by the following:

I. The duly notarized minutes stating the agreement of the board of directors or administrative body of a similar nature by which the aforementioned determination was made, indicating the measures and procedures followed by the Entity to make its determination to adhere to the Global Code of Conduct. For these purposes, it must include a detailed description of the evaluations performed, decision-making instances involved, as well as any other aspect considered for making such a decision, among which it may include: the size of the Entity, type and complexity of the Foreign Exchange Operations celebrated, type of Counterparties, sufficiency of controls, systems and structures for risk management they possess, as well as any other justification;

II. A description of the strategy for compliance with the Global Code of Conduct, including the deadlines and stages planned for the implementation of the corresponding measures for such purposes;

III. The policies, procedures, and guidelines necessary to implement the Global Code of Conduct, in particular, those aimed at promoting, among general managers, executives, and other personnel participating in Foreign Exchange Operations, compliance with the Global Code of Conduct, as well as ensuring its compliance;

IV. The policies the Entity will follow to foster adherence to the Global Code of Conduct, in particular, the measures and means it will use to make its adherence to the Global Code of Conduct known to the public (mass media or bilaterally);

V. The actions and measures established to promote that its Counterparties adhere to the Global Code of Conduct, including, if applicable, a description of modifications to the legal instruments documenting Foreign Exchange Operations with the purpose of obtaining the Counterparty's commitment declaration to adhere to the Global Code of Conduct. Specifying whether it uses the commitment declaration model provided in Annex 2 of these Rules or another format;

VI. The controls and processes it will implement to follow up and evaluate, with the periodicity indicated regarding this matter, its compliance with the Global Code of Conduct, as well as that of its Counterparties;

VII. The measures to supervise and sanction non-compliance with the Global Code of Conduct by its personnel, as well as by its Counterparties, and

VIII. The periodicity with which the audit committee, through communication signed by the president of said collegiate body, or whoever exercises the oversight functions in the Entities, through the means indicated regarding this matter, must report to its board of directors or administrative body of a similar nature, as well as to the Bank of Mexico, on the follow-up and compliance with the Global Code of Conduct in its Foreign Exchange Operations, or

B. Its determination not to adhere to the Global Code of Conduct, as well as a justification detailing the measures and procedures followed to determine not to adhere to the Global Code of Conduct. For these purposes, it must include a detailed description of the evaluations performed, decision-making instances involved, as well as any other additional aspect that was considered for making the decision, among which it may include: the size of the Entity, type and complexity of the Foreign Exchange Operations they perform, type of Counterparty, sufficiency of controls, systems and structures for risk management they possess, as well as any other justification.

In the event that an Entity, after having presented the report referred to in the first paragraph of this Rule to the Bank of Mexico, determines to change the sense of its decision regarding adherence to the Global Code of Conduct, it must present a new communication in terms of the aforementioned letters A or B, as applicable, in order to inform said situation.

4a. Non-compliance with the Global Code of Conduct.- The Entity that has communicated to the Bank of Mexico its determination to adhere to the Global Code of Conduct in terms of these Rules, must inform the Bank of Mexico, prior agreement of the audit committee or equivalent body of the Entity, each of the non-compliances with the Global Code of Conduct in its Foreign Exchange Operations. The Entity must inform the above through communication signed by the president of the audit committee, or whoever exercises the oversight functions, by the means determined for this purpose by the Bank of Mexico.

For these purposes, the president of the audit committee or whoever exercises the oversight functions must include in the referred report, at least, a description of the following: the detected non-compliances, the internal instances involved in the Foreign Exchange Operation and in the detection of the non-compliance, the type and characteristics of the Foreign Exchange Operations related to the non-compliance, the impact derived from said non-compliance, the measures adopted to mitigate the possible risks derived from the non-compliance, and, if applicable, the sanctions imposed, as well as the strategy and measures it will implement in order to prevent similar non-compliances to the detected one from occurring again and which will allow its Foreign Exchange Operations to be carried out in compliance with the terms of the Global Code of Conduct.

5a. Operations with the Bank of Mexico.- The Entity, prior to celebrating Foreign Exchange Operations with the Bank of Mexico in terms of applicable provisions, must adhere to the Global Code of Conduct and present the report referred to in letter A of 3a of these Rules.

The Bank of Mexico will abstain from celebrating Foreign Exchange Operations with Entities until the respective Entity presents the report referred to in the first paragraph of this Rule.

6a. Publication of Entities.- The Bank of Mexico, in order to foster the sound development of the Mexican financial system and, in particular, the Foreign Exchange Operations market, will publish, through its website:

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A. A list that allows identifying the name of: (i) the Entities that have informed it of their determination to adhere to the Global Code of Conduct in terms of these Rules, and (ii) the Entities that have determined not to adhere to said code, and

B. Those additional aspects that the Bank of Mexico determines in order to promote adherence to the Global Code of Conduct.

ANNEX 1 GLOBAL CODE OF CONDUCT

PREAMBLE

I. What is the Global Code of Conduct for the Foreign Exchange Market?

This set of global principles of good practices in the foreign exchange market (Global Code of Conduct) has been developed in order to establish a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market (Foreign Exchange Market). 1 The intention of this document is to promote a robust, fair, liquid, open and adequately transparent market, in which the diversity of Market Participants, backed by resilient infrastructures, are able to conduct their business reliably and effectively at competitive prices that reflect available market information, adhering to acceptable standards of conduct.

The Global Code of Conduct does not impose legal or regulatory obligations on Market Participants nor does it substitute regulation, but rather intends to function as a complement to any or all local laws, rules, and regulations, by identifying global good practices and processes.

The Global Code of Conduct was developed with the collaboration of central banks and Market Participants from 16 jurisdictions around the world.

• On the part of central banks, in July 2015, the Foreign Exchange Working Group (FXWG) was established to facilitate the creation of the Global Code of Conduct and promote its adoption. This group operates under the auspices of the Markets Committee, composed of senior officials responsible for market operations in 21 central banks representing the 15 largest monetary zones. The group was chaired by Guy Debelle (Deputy Governor, Reserve Bank of Australia).

• On the part of the private sector, the FXWG formed a Market Participants Group (MPG), chaired by David Puth, Chief Executive Officer of CLS Bank International, in order to coordinate through regional foreign exchange market committees (FEMCs) and representatives of the Foreign Exchange Market in other regions, with the objective of involving a broad and diverse group of Market Participants in the process to develop and promote the Global Code of Conduct.

The effort to create the Global Code of Conduct has been collaborative. The FXWG and MPG prepared various drafts, which were provided to the FXWG and MPG members themselves, as well as to the regional FEMCs sponsored by the FXWG and certain sector groups, for their comments, with the purpose of obtaining contributions from a broad spectrum of Foreign Exchange Market participants.

The Global Code of Conduct is organized around six guiding principles.

• Ethics: Market Participants are expected to behave in an ethical and professional manner to promote fairness and integrity of the Foreign Exchange Market.

• Governance: Market Participants are expected to have a sound and effective governance framework that makes it possible to establish clear responsibilities in their activities in the Foreign Exchange Market, allows for comprehensive supervision, and promotes their responsible participation in the Foreign Exchange Market.

• Execution: Market Participants are expected to be careful in the negotiation and execution of operations with the purpose of promoting a robust, fair, open, liquid, and sufficiently transparent Foreign Exchange Market.

1 Foreign Exchange Market Committees (FEMCs) and central banks may continue to issue local standards when necessary to address specific circumstances of their markets.

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• Information Exchange: Market Participants are expected to be clear and precise in their communications and protect Confidential Information in order to achieve effective communication that supports a robust, fair, open, liquid, and sufficiently transparent Foreign Exchange Market.

• Risk Management and Regulatory Compliance: Market Participants are expected to promote and maintain a robust control and regulatory compliance environment to identify, measure, supervise, manage, and report, effectively, the risks associated with their participation in the Foreign Exchange Market.

• Confirmation and Settlement Processes: Market Participants are expected to implement robust, efficient, transparent, and risk-mitigating post-negotiation processes, in order to promote predictable, smooth, and timely settlement of Foreign Exchange Market operations.

This Global Code of Conduct will be reviewed periodically and is expected to evolve over time in a similar collaborative manner.

The Global Code of Conduct and Applicable Regulation

Market Participants must be aware of and comply with the laws, rules, and other regulations applicable to them and the Foreign Exchange Market in each jurisdiction in which they conduct business (Applicable Legislation). Market Participants will continue to be responsible for having internal policies and procedures to comply with such Applicable Legislation.

The content of this guide in no way substitutes or modifies the Applicable Legislation. Likewise, this guide does not represent the judgment of any regulator, supervisor, or any authority, self-regulatory body with powers in the relevant markets or of Market Participants, nor does it intend to restrict their discretion, and does not grant any legal mitigation for infractions of the Applicable Legislation.

The purpose of this Global Code of Conduct is to serve as an essential reference for Market Participants in conducting their business in the Foreign Exchange Market, as well as in the development and review of their internal procedures. It is not intended to be a comprehensive guide for conducting operations in the Foreign Exchange Market.

Some of the terms used in this Global Code of Conduct may be provided or defined in a particular manner in the Applicable Legislation, which may imply certain duties or obligations in some jurisdiction. Whenever the intention of this document is to serve as a code of good practices for Market Participants operating in different jurisdictions, it is not intended that the meanings assigned to terms in any jurisdiction be applicable for the interpretation of this Global Code of Conduct. For clarity, the terms used in this Global Code of Conduct shall be understood in accordance with the meanings commonly accepted in practice in the Foreign Exchange Market without granting them specific legal or regulatory meanings.

Annex 2 contains a glossary of the terms that appear with capital letters throughout this Global Code of Conduct.

II. Who does the Global Code of Conduct apply to?

The Foreign Exchange Market comprises a diverse group of participants who intervene in the market in different ways and through various foreign exchange products. The drafting of the Global Code of Conduct takes this diversity into account and it is expected that this applies to all Market Participants in the Foreign Exchange Market, including sell-side and buy-side entities, non-bank liquidity providers, Electronic Trading Platform operators, and other entities that offer negotiation, execution, and settlement services. Although there cannot be a universal approach to application to all cases, given the diversity of the market, the intention of the Global Code of Conduct is to establish a common set of guidelines for responsible participation in the market.

For the purposes of this document, a “Market Participant” 2 is a person or organization (regardless of its legal nature) that:

2 The term Market Participant is generally used to refer to both entities and their personnel, in accordance with the definition. However, in some cases it is clear that a principle is, by its very nature, more relevant to one or the other. For example, certain principles are referred primarily to corporate or business policies and procedures rather than conduct...

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(i) actively participates in the Foreign Exchange Market as an ordinary part of its business and is involved in the activity of buying or selling currencies or in operations designed to generate profits or losses based on the fluctuation of one or more exchange rates, such as derivatives, with or without delivery, either directly or indirectly through other Market Participants; or (ii) operates a facility, system, platform, or organization through which participants have the capacity to execute the types of operations described in the preceding subsection (i); or (iii) provides reference exchange rate execution services, and (iv) is not considered a participant in the retail market in the corresponding jurisdiction(s). This term includes all personnel who carry out the foregoing on behalf of a Market Participant. For the sake of clarity, in a general manner, the following types of persons or organizations are considered to carry out activities in the Foreign Exchange Market as Market Participants, as described in subsections (i) – (iv) above: • financial institutions; • central banks, except in cases where this would interfere with the performance of their legal powers or functions related to their respective policy areas; 3 • supranational or quasi-sovereign entities, except in those cases where this would interfere with the fulfillment of their policy mandate as an organization; • asset managers, sovereign wealth funds, hedge funds, pension funds, and insurance companies; • a corporate treasury area or Corporate Treasury Center that conducts external operations outside the consortium, either on its own behalf or on behalf of its holding companies, subsidiaries, branches, affiliates, or joint venture associations of the group it represents; • family offices that carry out treasury operations; • providers of reference exchange rates for execution; • non-bank liquidity providers; companies dedicated to offering automated trading strategies, including high-frequency trading strategies, as well as those offering algorithm-based executions; • brokerage houses (brokers) (including retail foreign exchange brokerage houses), investment advisors, aggregators, intermediaries, and analogous agents; • remittance transmitters, exchange houses, and businesses that provide money services in their interaction with the Wholesale Foreign Exchange Market; • Electronic Trading Platforms; • confirmation and settlement platforms, and • any entity classified as a Foreign Exchange Market Participant in the corresponding jurisdiction(s). For the sake of clarity, it is considered that the following types of persons generally do not carry out foreign exchange activities as Market Participants, as described in subsections (i) – (iv) above: • price screen platforms; • remittance transmitters, exchange houses, and businesses that provide money services in their interaction with retail clients; • private banking clients who conduct operations in their capacity as natural persons or through personal investment vehicles, and

individuals. The terms “entity” and “personnel” are used, occasionally, in cases where the principles focus on the good practices of entities regarding their personnel in their capacity as such and vice versa. 3 Note that the operations of central banks in compliance with their legal obligations or as part of the policy functions of their respective areas may be executed by the central banks themselves or through other Market Participants, including financial institutions and supranational entities, acting in their capacity as agents or in any other manner, on behalf or for the account of the central bank.

Wednesday, October 11, 2017 OFFICIAL GAZETTE 7 • the general retail public. The universe of Market Participants is considerably diverse in terms of the types and levels of participation in the Foreign Exchange Market. It is expected that the Global Code of Conduct applies to all these Market Participants, although the detail on how it might apply will depend on the main operations they carry out. In practice, the measures that different Market Participants adopt to align their activities with the principles of the Global Code of Conduct must necessarily reflect the size and complexity of their activities in the Foreign Exchange Market and their participation in said market, taking into account the Applicable Legislation. Ultimately, the decision on the measures to be adopted, as well as the manner in which they do so, will depend on each Market Participant and must be the reflection of an adequate internal assessment. Annex 3 presents a format for a “Declaration of Commitment”. This Declaration, like the Code, is of a voluntary nature, so Market Participants may use it in different ways to strengthen the objectives of the Code, fostering transparency, efficiency, and functioning in the Foreign Exchange Market. The Declaration is accompanied by an explanatory note that provides additional background.

Ethics GUIDING PRINCIPLE: Market Participants are expected to behave in an ethical and professional manner to promote the fairness and integrity of the Foreign Exchange Market. The ethical and professional conduct of Market Participants is the basis for the fairness and integrity of the Foreign Exchange Market. The exercise of value judgments is fundamental to ethical and professional conduct, and Market Participants (understood as both companies and their personnel) must base their conduct on the high-level principles indicated below, whether when the specific guidance provided in the Global Code of Conduct applies, as well as at all times during their participation in the Foreign Exchange Market.

PRINCIPLE 1 Market Participants must strive to achieve the highest ethical standards. Market Participants must: • act with honesty in their dealings with Clients and other Market Participants; • act in an equitable manner, treating Clients and other Market Participants consistently and with appropriate transparency, and • act with integrity, particularly by avoiding and confronting questionable practices and conduct. Maintaining the highest standards of conduct is the responsibility of the following subjects: • companies, which must promote ethical values and conduct within them, support efforts to promote high ethical standards in the Foreign Exchange Market, as well as encourage the participation of their personnel in such efforts; • senior and first-line executives, who must be proactive in integrating and supporting the adoption of ethical values within the company culture, as well as being prepared to provide appropriate advice to personnel, and • personnel, who must exercise their judgment when faced with ethical questions, keep in mind that they will be responsible for their unethical conduct, and seek advice in cases where it is required. Personnel must report and/or inform appropriate internal or external bodies of concerns, taking into account the circumstances.

PRINCIPLE 2 Market Participants must strive to achieve the highest professional standards. All Market Participants share a common interest in maintaining the highest degree of professionalism and the highest standards of professional conduct in the Foreign Exchange Market. The highest standards of conduct are based on the following elements: • having sufficient knowledge of the Applicable Legislation and complying with it;

8 OFFICIAL GAZETTE Wednesday, October 11, 2017 • having sufficient relevant experience, technical knowledge, and skills; • acting with competence and expertise; • applying professional judgment in following the company’s guidelines and operational procedures, including, but not limited to, execution methods, records, and ethical conduct, and • carrying out efforts to achieve the highest standards of professionalism in the Foreign Exchange Market. Companies must have adequately trained personnel with the necessary experience to perform their duties professionally.

PRINCIPLE 3 Market Participants must identify and address conflicts of interest. Market Participants must identify actual and potential conflicts of interest that may compromise or be perceived to compromise the ethical or professional judgment of Market Participants. Market Participants must eliminate these conflicts or, if this is not reasonably possible, manage them effectively in such a way as to promote fair treatment of their Clients and other Market Participants, including abstaining from executing the activity or action in which they have a conflict of interest. Personnel must be aware of the potential emergence of conflicts of interest and comply with the company’s policies in these areas. Some contexts in which conflicts of interest may arise are, among others, the following: • situations where personal or company interests may conflict with those of a Client or another Market Participant, or where such conflict arises for the Market Participant in cases where the interests of one Client may conflict with those of another Client; • personal relationships; • gifts and forms of corporate entertainment, and • Principal Transactions. Market Participants must implement appropriate and effective measures to eliminate or manage conflicts of interest. These may include: • segregation of functions and/or reporting lines; • the establishment of information barriers (for example, the physical separation of certain areas and/or electronic segregation); • the modification of personnel duties in cases where they are likely to give rise to conflicts of interest; • providing training to relevant personnel to enable them to identify and address conflicts of interest; • establishing policies for declarations and/or records of identified conflicts of interest and personal relationships, as well as for gifts and corporate entertainment events received, and • adoption of policies and controls for Principal Transactions. When it is concluded that a specific conflict of interest cannot be reasonably avoided or managed effectively (including scenarios where the service has been ceased or the corresponding activity carried out), Market Participants must disclose the necessary details of the conflict so that affected parties can decide in advance whether they wish to continue with the operation or suspend the contracting of the service.

Governance

Wednesday, October 11, 2017 OFFICIAL GAZETTE 9 GUIDING PRINCIPLE: Market Participants are expected to have a solid and effective governance framework that makes it possible to establish clear responsibilities for comprehensive supervision of their activities in the Foreign Exchange Market, as well as to promote their responsible participation in the Foreign Exchange Market. Governance structures must be established to promote and support the principles established in this Code. The governance structures of companies may vary in their complexity and scope. The particular structure adopted must be proportional to the size and complexity of the Market Participant’s activities and the nature of its participation in the Foreign Exchange Market in accordance with the Applicable Legislation.

PRINCIPLE 4 The board of directors or the person(s) responsible for the foreign exchange business strategy and the financial soundness of the Market Participant must establish the structure and effective mechanisms that allow for adequate monitoring, supervision, and controls regarding their activity in the Foreign Exchange Market. The board of directors or the person(s) responsible for establishing the foreign exchange business strategy and the financial soundness of the Market Participant must implement: • an operational structure with clearly defined and transparent lines of responsibility in the Market Participant’s activities in the Foreign Exchange Market; • effective supervision of the Market Participant’s activities in the Foreign Exchange Market, based on adequate information management; • an environment that promotes challenge to the senior management responsible for the daily activities of the Market Participant’s foreign exchange operations, and • independent control functions and mechanisms that allow for the evaluation of whether the Market Participant carries out its activities in accordance with the requirements to mitigate operational risk and in compliance with conduct requirements. These functions must have sufficient hierarchical level, sufficient resources, and access to the board of directors or the person(s) responsible for the foreign exchange business strategy and financial soundness of the Market Participant. In implementing the foregoing, consideration must be given to the types of activities in which the Market Participant is involved, including whether the Market Participant is involved in the provision or use of Electronic Trading Activities or Brokerage Services (Prime Brokers).

PRINCIPLE 5 Market Participants must integrate a solid culture of ethical and professional conduct regarding their activities in the Foreign Exchange Market. Market Participants must, among other things: • expect that senior management persons be a visible example to relevant personnel of the Market Participant by articulating and modeling desired practices, values, and conduct; • implement the necessary measures to promote and reinforce awareness and understanding of (i) the values and ethical and conduct standards to which they must adhere in their participation in the Foreign Exchange Market, and (ii) the Applicable Legislation that is relevant to them (see Principle 25), and • make personnel, including senior management, aware of disciplinary actions or other consequences that may result from engaging in unacceptable conduct and violations of the Market Participant’s policies.

PRINCIPLE 6 Market Participants must have remuneration and promotion structures that foster practices and conduct consistent with the ethical and professional conduct expected of the Market Participant.

10 OFFICIAL GAZETTE Wednesday, October 11, 2017 The remuneration and promotion structures of companies must foster practices and conduct that are consistent with the company’s expectations of ethical and professional conduct, which must not incentivize personnel to engage in inappropriate conduct or practices or to take risks that exceed the general risk parameters of the Market Participant. Among the factors that must be taken into consideration are, among others, the following: • mixed payment components, such as fixed and variable; • form and term for the payment of the variable payment component; • the manner in which such structures align the interests of personnel with the interests of the company in a short and long-term horizon, and • appropriate mechanisms to discourage inappropriate practices or conduct.

PRINCIPLE 7 Market Participants must have appropriate policies and procedures to handle and respond to possible inappropriate practices and conduct effectively. Market Participants must maintain policies and procedures supported by effective mechanisms to (i) provide confidential channels for personnel and third parties to submit reports on potential inappropriate practices or conduct and (ii) investigate and respond to such reports when appropriate. Specifically, companies must make known to personnel and third parties where and how they can submit their reports on possible inappropriate practices and conduct (including, without limitation, illegal, unethical, or questionable practices or conduct), in a confidential manner and without fear of retaliation. Reports on possible inappropriate practices and conduct of the Market Participant must be investigated by independent areas or functions. Such areas or functions must have sufficient skills and experience—and the necessary resources and access—to carry out the investigation. Market Participants must complete the investigation and determine the appropriate outcome within a reasonable time, taking into consideration the nature and complexity of the matter in question. It may be appropriate to escalate the matter within the company and report it outside of it before the investigation concludes. The reports and results must be made known to appropriate personnel within the Market Participant and, if necessary, to relevant authorities.

Execution GUIDING PRINCIPLE: Market Participants are expected to exercise care in the negotiation and execution of operations, with the purpose of promoting a robust, fair, open, liquid, and sufficiently transparent Foreign Exchange Market. The execution landscape of foreign exchange operations is diverse, as this is carried out through different channels and Market Participants adopt different roles in relation to such execution. All Foreign Exchange Market Participants, regardless of their role in the execution of operations, must behave with integrity to support the effective functioning of the Foreign Exchange Market.

PRINCIPLE 8 Market Participants must have clear the powers with which they act. Market Participants must understand and clearly communicate their roles and functions when processing orders or executing operations. Market Participants may have agreements or other business arrangements in which the roles governing all foreign exchange operations they carry out are defined, or they may manage their relationship by determining their roles in each particular operation. If a Market Participant wishes to modify the role with which he or his counterparty acts, such modification must be agreed upon by both parties. The Market Participant receiving an order from the Client may: • act as an Agent, executing orders on behalf and for the account of its Client, in accordance with the mandate granted and without assuming market risks related to the instruction, or • act as Principal assuming one or more risks related to an order, including market and credit risks. Principals act on their own behalf and have no obligation to execute the

order unless both parties agree. In cases where the order grants certain discretion to the Principal, this must be exercised reasonably, fairly, and in such a way that it is not designed or intended to cause harm to the Client.

PRINCIPLE 9 Market Participants must handle Client orders fairly and transparently, in accordance with the powers under which they act.

Market Participants are expected to handle Client orders fairly and transparently. The manner in which they do so and the applicable best practices will depend on the roles in which Market Participants are acting, as described in Principle 8 above. Although the Currency Market has traditionally operated through the Principal figure, the Agent figure is also used. Therefore, this principle applies to both figures, as well as to Electronic Trading Platforms and Interdealer Broker Services.

ROLES Regardless of their role, all Market Participants handling orders must:

• have clear standards aimed at providing a fair and transparent outcome for the Client;
• be truthful in their statements;
• use clear and unambiguous language;
• specify whether the prices they are providing are firm or merely indicative;
• have adequate processes that allow for the rejection of Client orders for products considered inappropriate for the Client;
• not execute trades with the intention of causing a disruption in the market (for further guidance see Principle 12 on Execution), and
• provide all relevant information to the Client prior to negotiating their orders, so that the Client can decide in an informed manner whether or not to execute the trade.

Market Participants must inform their Clients of factors such as:

• the manner in which orders are handled and executed, including whether they are aggregated or prioritized according to time;
• the possibility that orders may be executed electronically or manually, depending on the disclosed terms;
• the various factors that could affect the execution policy, which generally include positioning terms, whether the Market Participant, managing Client orders, is assuming or not assuming the risks associated with those trades, prevailing liquidity and market conditions, other Client orders and/or trading strategies that could affect the execution policy;
• whether there is discretion or if it is expected to exist, and how it should be exercised, and
• when possible, what the hours policy is and if it applies, both when the order is accepted and when it is activated or executed (for further guidance see Principle 36 on Risk Management and Regulatory Compliance).

Market Participants handling Client orders in their role as Principal must:

• inform the terms and conditions under which the Principal will interact with the Client, which may include:
  • that the Principal acts on its own behalf as the Client's counterparty;
  • the manner in which the Principal will communicate and negotiate requests for quotes and indicative prices, the discussion or placement of orders, and any other relevant data that could lead to the execution of trades; and
  • the manner in which potential or existing conflicts of interest that may arise when acting as a Principal or market maker will be identified and addressed;

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• clearly establish the moment in which market risk might be transferred;
• have activities as market makers and as risk management, such as hedging operations, in accordance with their trading strategy, positioning, risk assumed, and prevailing liquidity and market conditions, and
• have internal Margin policies consistent with the guidelines set forth in this Global Code of Conduct.

Market Participants handling Client orders in their role as Agent must:

• communicate to the Client the nature of their relationship;
• seek to obtain the result requested by their Client;
• establish a transparent order execution policy, which must provide Clients with relevant information about their order, which may include:
  • information on where the company may execute the Client's orders;
  • the factors that influenced the selection of trading platforms, and
  • information on the manner in which the Agent intends to execute the Client's orders in a timely, fair, and expeditious manner;
• be transparent with their Clients regarding their terms and conditions, which clearly establish the fees and commissions applicable during the term of the contract, and
• share information related to accepted orders in their capacity as Agent with market makers or Principal trading desks exclusively when necessary to request a competitive quote (for further guidance see Principle 19 on Information Exchange).

Market Participants operating Electronic Trading Platforms must:

• have transparent rules for users;
• clearly inform any restriction or requirement applicable to the use of electronic quotes;
• clearly establish the point at which market risk can be transferred;
• appropriately disclose their subscription services and associated benefits offered, including market information (so that Clients have the opportunity to choose the best services for which they are eligible).

Market Participants acting as Interdealer Broker Services must:

• meet similar expectations as those described above for Market Participants handling Client orders in their role as Agents;

Interdealer Broker Services may operate via voice, as Voice Brokerage Services, or may operate partially or entirely via electronic means. Those that have an electronic component will also be considered as Electronic Trading Platforms and, therefore, must comply with the expectations of right described for Market Participants operating Electronic Trading Platforms.

Market Participants acting as Clients must:

• be aware of the rights they should expect from others, as mentioned previously;
• be aware of the risks associated with the trades they request and take, and
• periodically evaluate the execution of received orders.

PRINCIPLE 10 Market Participants must process orders transparently, fairly, and in accordance with the relevant characteristics applicable to different types of orders.

Market Participants must be aware that different types of orders may have different characteristics for execution. For example:

Wednesday, October 11, 2017 DIARIO OFICIAL 13 Market Participants executing Stop Loss Type Orders must:

• obtain from the Client the necessary information to define the terms of the Stop Loss Type Order, such as reference price, amount, duration, and trigger for the orders, and
• reveal to Clients if risk management operations may be executed near the level established for the execution of the Stop Loss Type Order and that those operations may impact the reference price and result in the triggering of the Stop Loss Type Order.

Examples of unacceptable practices:

• negotiating or acting with the purpose of moving the market to the Stop Loss level, and
• offering Stop Loss Type Orders, which are based on the deliberate formation of losses.

Market Participants filling a Client order, even partially, must:

• act fairly and reasonably in accordance with prevailing market circumstances, as well as any other factor revealed to the Client, when determining whether and how to fill the Client's order, paying attention to other relevant policies;
• decide whether and how to fill a Client order, including partially, and communicate that decision to the Client as soon as possible, and
• fill Client orders in full within the parameters specified by the latter, subject to factors such as the need to prioritize among Client orders and the availability of any credit line that the Market Participant may grant to the Client at that time.

Market Participants handling Client orders to trade at a particular reference price (Fixing Orders - Orders at a Reference Exchange Rate) must:

• understand the associated risks and know the applicable procedures;
• refrain from sharing information inappropriately, whether to collude or for any other purpose, or attempt to influence the exchange rate;
• refrain from intentionally influencing the reference exchange rate to benefit directly or through Client flows that have the exchange rate as the underlying of their trades with them, and
• behave in accordance with what is established in the Recommendations of the Report on Reference Exchange Rates by the Financial Stability Board, 4 which include, but are not limited to, among others:
  • pricing trades transparently and consistently with the risk inherent in accepting such trades, and
  • establishing and enforcing internal procedures and guidelines to collect and execute Orders at a Reference Exchange Rate.

Indicative examples of acceptable practices:

• negotiating an order before, during, or after the close of the reference exchange rate calculation window, provided it is not done in a manner that intentionally generates a negative impact on the market price and the outcome for the Client.
• aggregating all Client interests and executing the net amount;

Indicative examples of unacceptable practices:

• buying or selling an amount greater than the Client's interest seconds prior to the close of the reference exchange rate calculation period with the intention of increasing or decreasing its price to the detriment of the Client;
• buying or selling an amount shortly before the reference exchange rate calculation period in such a way that there is an intention to negatively impact the market price and the outcome for the Client;
• showing large interest in the market during the reference exchange rate calculation period with the intention of manipulating said price to the detriment of the Client;
• reporting specific Client operations to the reference price to persons other than,

4 See Final Report of the Financial Stability Committee on Reference Exchange Rates, dated September 30, 2014.

14 DIARIO OFICIAL Wednesday, October 11, 2017

• acting with other Market Participants to increase or decrease the reference exchange rate to the detriment of a Client's interests (for further guidance see Principles 19 and 20 on Information Exchange).

Finally, Market Participants processing orders that potentially may have relevant impacts on the market must do so with particular care and attention. For example, certain operations, such as mergers and acquisitions, could have a relevant impact on the market.

PRINCIPLE 11 The Market Participant shall only perform Pre-Hedging with respect to their Clients' orders when acting as Principal and must do so fairly and transparently.

Pre-Hedging is the management of risk associated with one or more Client orders designed to benefit the Client in relation to such orders and any resulting trade.

Market Participants may perform Pre-Hedging for such purposes and in such a way that they do not intend to harm the Client or affect the market. Market Participants must inform their Clients of their Pre-Hedging policies so that Clients understand their options regarding its execution.

• When evaluating whether Pre-Hedging is being performed in accordance with the principles mentioned above, the Market Participant must consider prevailing market conditions (such as liquidity) and the size and nature of the anticipated trade.
• Along with performing Pre-Hedging, the Market Participant may continue with its operations, including risk management, market making, and the execution of other Clients' orders. To determine if Pre-Hedging is applied in compliance with the aforementioned principles, the Pre-Hedging of a single trade must be considered within a portfolio of trades that takes into account the Market Participant's global exposure.
• In cases where the Market Participant is acting as an Agent, it must refrain from performing Pre-Hedging.

PRINCIPLE 12 Market Participants must not solicit trades, create orders, or provide prices with the intention of creating a disruption in the functioning of the market or impeding the price discovery process.

Market Participants must not engage in trading strategies or price quoting with the intention of impeding market functioning or compromising its integrity. Such strategies include those that may cause a period of latency, artificial price movements, or delays in the operations of other Market Participants and that result in a false impression of the price, depth, or liquidity of the market. Such transactions also include practices to commit acts of collusion and/or to manipulate the market, including, among others, those in which an offer is made with the intention of canceling it before its execution (occasionally referred to as “spoofing”, “flashing” or “layering”) and other practices that may create a false appreciation of prices, market depth or liquidity (occasionally referred to as “quote stuffing” or “wash trades”).

Market Participants that publish quotes must do so always with the intention to trade. Prices published only as indicative must be clearly identified as such.

Market Participants must take into consideration market conditions and the potential impact of their operations and orders. Trades must be executed at prices or rates based on prevailing market conditions at the time of the trade, except for historical renewal rates, which must be covered by internal compliance policies.

Market Participants, without exception, must decline all Client orders regarding which they have grounds to believe that their intention is to distort or affect the functioning of the market. Market Participants must escalate these events to the relevant higher hierarchical levels.

PRINCIPLE 13

Wednesday, October 11, 2017 DIARIO OFICIAL 15 Market Participants must understand how reference prices, including maximums and minimums, are established in relation to their operations and/or orders.

This knowledge must be supported by appropriate communications between the parties, which may include the provision of information. In case a source provided by a third party is used for the determination of reference prices, both parties must know the mechanisms to perform the price calculation and the existing contingency measures in the event that the third party's price is not available.

PRINCIPLE 14 Margins applicable to Client operations of Market Participants acting as Principals must be fair and reasonable.

Margin is the differential in favor or the charge that can be added to the final price of a trade to compensate the Market Participant for a number of considerations that may include risks assumed, costs incurred, and services provided to a particular Client.

Market Participants must promote transparency by documenting and publishing information related to their currency operations, which must include, among others:

• clarify to their Clients that the final price of the order may include a Margin;
• clarify to their Clients that some Clients might receive different prices for the same operations or for similar operations;
• help Clients understand how the Margin is determined, indicating the factors that may contribute to its determination (including those related to the nature of the operation in question and those derived from the relationship with the Client, as well as any significant operational cost), and
• inform Clients of how the Margin may impact the prices and/or execution of any order associated with or whose execution is conditioned on a specific exchange rate.

Companies must have policies and procedures that allow their staff to determine adequate and fair Margins. Such policies and procedures must include, at least:

• guidelines establishing that prices for Clients must be fair and reasonable considering applicable market conditions and internal risk management practices and policies, and
• guidelines establishing that staff must always act honestly, fairly, and professionally when determining Margins, including the prohibition of revealing misleading information related to any aspect of the Margin to the Client.

Market Participants must have processes to monitor whether their practices for determining Margins are consistent with their policies and procedures, as well as with the information provided to their Clients. Margins must be subject to supervision and reporting to higher hierarchical levels within the Market Participant.

PRINCIPLE 15 Market Participants must identify and resolve their operational differences as soon as possible in order to contribute to the good functioning of the Currency Market.

Market Participants must have effective policies and procedures designed to minimize the number of discrepancies arising from operations related to their activities in the Currency Market and must address those that arise expeditiously.

Market Participants acting as Brokerage Services (Prime Brokers) play a particular role by assuming the credit risk of operations executed by their Clients. In cases where the Client's identity is known, the Brokerage Service Clients (prime brokerage Clients) and the execution dealers are responsible for resolving operational discrepancies in order to achieve timely modifications and match the terms of the negotiation through the Brokerage Service (Prime Broker).

When anonymous access to the market is granted, the provider of access must help in the resolution of operational discrepancies.

16 OFFICIAL GAZETTE Wednesday, October 11, 2017

PRINCIPLE 16

Market Participants acting as Voice Broking Services may only perform name switching when there is insufficient credit between the parties associated with the transaction.

Voice Broking Services that employ name switching must:

• have adequate controls and appropriately supervise these transactions;
• have the necessary authorizations;
• execute and register such transactions as soon as possible, in accordance with the appropriate protection of the corresponding Confidential Information, and
• maintain adequate records of such activity.

The dealer must not request or accept favors from a Voice Broker to perform name switching.

PRINCIPLE 17

Market Participants that employ the last look practice must be transparent in their use and provide relevant information to their Clients.

The last look practice is a practice used in Electronic Trading Activities where a Market Participant receiving a trade request has a final opportunity to accept or reject the request at the quoted price. Market Participants receiving trade requests that utilize this last look window must have governance structures and controls related to their design and use that are consistent with public terms. This practice may include appropriate management and regulatory compliance supervision.

Market Participants must be transparent in the use of last look practices so that the Client understands and is able to make informed decisions about how such practice will be applied to their transaction. The Market Participant must provide, at a minimum, explanations regarding how and in what manner changes in price in any direction may impact the decision to accept or reject the transaction, the expected or usual period granted for making the decision, and, generally, the purpose for using the last look practice.

If used, the last look practice must be a risk control mechanism used to verify validity and/or price. The verification of validity must be intended to confirm that the details of the transaction contained in the trade request are appropriate from an operational perspective and that there is sufficient credit available to execute the contemplated transaction in the trade request. The verification of price must be intended to confirm that the price at which the trade request was made continues to be consistent with the current price that would be available to the Client.

In the context of the last look practice, the Market Participant has absolute discretion, based on the validity and price verification processes, to accept or not accept the Client's trade request, leaving the latter with the potential market risk in the event that the trade request is not accepted. In this way, and in accordance with the principles of the Global Code of Conduct:

• The last look practice must not be used for the purpose of obtaining information without the intention of accepting the Client's trade request.
• Confidential Information is generated from the moment the Market Participant receives the trade request at the beginning of the last look window, and the use of this Confidential Information must be consistent with Principles 19 and 20, regarding the Exchange of Information.
• During the last look window, any transaction that is executed using the information from the Client's trade request, including any hedging transactions, is inconsistent with good market practices, as it may send a signal to other Market Participants of the Client's trading intentions, biasing market prices against the interests of the Client, which (1) is likely not to benefit the Client and (2) in the event that the Market Participant rejects the Client's trade request, constitutes the use of Confidential Information in a manner not specified by the Client.

Wednesday, October 11, 2017 OFFICIAL GAZETTE 17

It is a sound practice for Market Participants to establish dialogues with their Clients to inform them of how their requests have been handled, including the treatment of information related to such orders. Such dialogue may include metrics to facilitate transparency in the manner of calculating the price and execution of the Client's trade requests and help the Client in evaluating the handling of their trade requests to determine if the execution methodology continues to meet their needs over time.

PRINCIPLE 18

Market Participants that provide algorithm-based trading or aggregation services to their Clients must provide them with adequate information on how they operate.

Market Participants may provide trading services based on algorithmic trading services that use computer programs that apply algorithms to determine various aspects, including price and quantity of orders.

Market Participants may also provide their Clients with aggregation services, services that provide access to multiple liquidity sources or trading platforms and which may include routing orders to those sources or venues.

Market Participants that provide algorithm-based trading services or aggregation services to their Clients must inform the following:

• a clear description of the algorithm-based execution strategy or the aggregation strategy, as well as sufficient information for the Client to evaluate the performance of the service, in accordance with the protection of related Confidential Information;
• whether the algorithm provider or aggregation service provider can act as Principal in the execution;
• the costs applicable for the provision of the services;
• in the case of algorithm-based trading services, general information on how routing preferences will be determined, and
• in the case of aggregation services, information on the liquidity sources to which they may have access.

Clients of algorithm-based trading providers must use this information and disclosed information to continuously evaluate how appropriate the trading strategy is in relation to their execution strategy.

Clients using an aggregator to access trading markets must know the parameters according to which the prices displayed by the aggregator will be determined.

Market Participants offering algorithm-based trading services or aggregation services must perform their services in accordance with the terms informed to the Client.

Exchange of Information

GUIDING PRINCIPLE:

Market Participants are expected to be clear and precise in their communications and to protect Confidential Information, in order to foster effective communication that supports a robust, fair, open, liquid, and sufficiently transparent Foreign Exchange Market.

I. Handling of Confidential Information

PRINCIPLE 19

Market Participants must clearly and effectively identify Confidential Information and adequately limit access to it.

Market Participants must identify Confidential Information. Confidential Information includes the following information that is not public domain and that is received or developed by a Market Participant:

(i) Foreign Exchange Market Transaction Information. It may refer to different types of information including that relating to past, present, and future activities, or to the own positions of Market Participants or their Clients, as well as that related sensitive information that is received or produced in the course of such activity. Some examples of this information are, among others, the following:

• details of the Market Participant's order book;
• other Interests of Market Participants:
• spread matrices offered by Market Participants to their Clients, and
• orders to obtain benchmark fix rates.

(ii) Information Designated as Confidential. Market Participants may agree to a higher standard of secrecy regarding Confidential, proprietary, exclusive-use, and any other information, which may be formalized through the signing of non-disclosure or similar confidentiality agreements.

The identification of Confidential Information must be in accordance with the legal and contractual restrictions applicable to the Market Participant.

Market Participants must limit access to and protect Confidential Information.

• Market Participants must not disclose Confidential Information except to those internal or external parties that have a valid justification to receive such information, such as risk management, legal requirements, or regulatory compliance needs.
• Under no circumstances must Market Participants disseminate Confidential Information to internal or external parties where it is considered they could misuse it.
• Confidential Information obtained from a Client, a potential Client, or a third party, must only be used for the specific purpose for which it was granted, except as mentioned above or as agreed with the Client.
• Market Participants acting as Prime Brokers must have an adequate level of segregation between their broking activities and other transactions they carry out.
• To avoid potential conflicts of interest, the Prime Broker must establish appropriate information barriers.
• Prime Brokers must be transparent about the standards they require and adopt.

PRINCIPLE 20

Market Participants must not provide Confidential Information to third parties except in specific circumstances.

Market Participants must only provide Confidential Information under particular circumstances. These may be, among others:

• to Agents, market intermediaries (such as brokerages or trading platforms) or other Market Participants to the extent necessary to execute, process, clear, novate, or settle a transaction;
• with the consent of the counterparty or the Client;
• when Applicable Legislation so requires, or is requested by an authority empowered to do so;
• when requested by the central bank in its capacity as the authority for policy conduct purposes, and
• to advisors or consultants, on the condition that they protect the Confidential Information in the same manner that the Market Participant providing it to such advisors or consultants protects it.

Market Participants may actively disclose their positions and/or their foreign exchange transactions provided that such information does not disclose Confidential Information of a third party and that the disclosure is not made with the intention of distorting market functioning or affecting the price discovery process or fostering other manipulation or collusion practices in the market.

Wednesday, October 11, 2017 OFFICIAL GAZETTE 19

Market Participants may only request Confidential Information when appropriate, in accordance with Principle 20.

When determining the possibility of disclosing Confidential Information, Market Participants must take into account Applicable Legislation, as well as agreed restrictions that limit such disclosure.

II. Communications

PRINCIPLE 21

Market Participants must communicate clearly, precisely, professionally, and without being misleading.

Communications must be easily understood by the recipient. Therefore, Market Participants must use terminology and language appropriate for the audience and must avoid the use of ambiguous terms. To strengthen the precision and integrity of information, Market Participants must:

• attribute to third parties information provided by said third parties (for example, a news service);
• clearly identify opinions as such;
• not provide false information;
• discuss rumors that could be generating price fluctuations judiciously, identify such rumors as such, and not propagate them or start rumors with the intention of manipulating markets or deceiving other Market Participants, and
• not provide misleading information in order to protect Confidential Information, for example, when executing partial orders. In such cases, Market Participants may, if requested, refrain from disclosing whether their trade request corresponds to the total amount rather than inappropriately implying that it is for the total amount.

Market Participants must be aware that communications made by their personnel reflect the company they represent, as well as the industry as a whole.

PRINCIPLE 22

Market Participants must communicate Market Color appropriately and without compromising Confidential Information.

The timely dissemination of Market Color among Market Participants can contribute to an efficient, open, and transparent Foreign Exchange Market through the exchange of information on general market conditions, different viewpoints, and aggregated and anonymous information flow.

Companies must provide clear guidelines to their personnel on the appropriate manner of sharing Market Color. In particular, communications must be restricted to information that is effectively aggregated and anonymous.

For such purposes:

• communications must not include specific Client names, nor other mechanisms that reveal the identity of a Client or patterns of behavior externally (for example, code names that implicitly link activity with a specific Market Participant), nor specific information of any individual Client;
• references to groups of Clients, locations, and strategies must be general enough so that Market Participants cannot infer the corresponding Confidential Information;
• communications must be limited to sharing viewpoints on the market and levels of conviction and must not disclose information on individual foreign exchange positions;
• flows must be disclosed only by price range and not by exact exchange rates related to a specific Client or flow, and references to volumes, other than foreign exchange transactions already publicly reported, must be referred to in general terms;
• the interest in options that are not publicly reported should only be discussed in terms of generally observed structures and thematic interest;
• references to execution times must be general, unless the transaction information can be widely observed;

20 OFFICIAL GAZETTE Wednesday, October 11, 2017

• Market Participants must be careful when providing information to their Clients regarding the status of their orders (including aggregated and anonymous Fixing Orders) to protect the interests of other Market Participants related to the information (which is particularly true when there are multiple orders, at the same level or very close to one another), and
• Market Participants must not request Confidential Information when providing or receiving Market Color.

PRINCIPLE 23

Market Participants must provide their personnel with clear guidelines on the approved forms and channels of communication.

Market Participants must communicate with other Market Participants through approved communication methods that allow for traceability, auditing, registration, and access controls. Information security standards must be applied regardless of the type of communication used. To the extent possible, Market Participants must maintain a list of approved types of communication, and it is recommended that communication channels on trading desks be recorded, especially when used to conduct foreign exchange transactions or to share Market Color. Market Participants must consider whether, under exceptional circumstances (for example, in an emergency or for business continuity purposes), they allow the use of unrecorded lines, but they must guide their personnel on the permitted use of such unrecorded lines or devices.

Risk Management and Regulatory Compliance

GUIDING PRINCIPLE:

Market Participants are expected to promote and maintain a robust control and regulatory compliance environment to effectively identify, manage, and report risks associated with their participation in the Foreign Exchange Market.

I. Frameworks for Risk Management, Regulatory Compliance, and Review

Adequate risk management, regulatory compliance, and review structures must be established to manage and mitigate risks arising from the activities of Market Participants in the Foreign Exchange Market. These structures vary in complexity and scope; however, they generally share some common aspects. For example:

• Responsibility lies with the business unit that incurs the risk through the performance of its activities.
• Additionally, there may be an area that supervises risk-taking and evaluates these risks independently from the business area, and an independent area that monitors compliance with Applicable Legislation and Standards.
• Finally, there may be a review or audit function that provides independent review of, among other things, internal control systems and business area activities, as well as risk management and regulatory compliance functions.
• Periodic independent reviews of risk and regulatory compliance controls must also be incorporated, including reviews of the qualitative and quantitative assumptions contemplated in risk management systems.
• The following principles describe numerous recommendations that illustrate how to achieve a robust framework for risk management, regulatory compliance, and its review. However, not all recommendations are appropriate for all Market Participants. Consequently, Market Participants must assess which recommendations are appropriate for them taking into consideration the size and complexity of their activities in the Foreign Exchange Market, as well as the nature of their participation in said market, taking into account Applicable Legislation.

PRINCIPLE 24

Market Participants must have frameworks for risk management and regulatory compliance.

The common components of these two frameworks may include:

• Effective supervision by the board of directors or individual(s), in accordance with Principle 4, including support for the position and independence of risk management and regulatory compliance functions. In particular:

Wednesday, October 11, 2017 OFFICIAL GAZETTE 21

√ The governing body or individual(s) must make strategic decisions regarding risk appetite in the foreign exchange business. √ The governing body or individual(s) must be responsible for the establishment, communication, compliance, and periodic review of their risk management and regulatory compliance framework, which clearly establishes regulation, limits, and policies. Risks must be managed in a prudent and responsible manner, in accordance with risk management principles and Applicable Legislation.

• The delivery to the governing body or individual(s) of concise, timely, accurate, and understandable information regarding risks and regulatory compliance. • Adequate segregation of functions and independent reporting lines, including the segregation of the unit carrying out foreign exchange operations from the risk management and regulatory compliance unit, as well as from processing, accounting, and settlement of operations. While risk managers and regulatory compliance personnel may work closely with the business units of the operation, risk management and regulatory compliance functions must be independent of the business unit of operations and must not be directly involved in generating profits. Compensation structures must be designed to not compromise such independence. • Sufficient resources and employees with clearly defined roles, responsibilities, and authorities, including appropriate access to information and systems. This personnel must have adequate knowledge, experience, and training.

PRINCIPLE 25

Market Participants must familiarize themselves with and adhere to Applicable Legislation and Standards that are relevant to the activities they carry out in the Foreign Exchange Market and must have an adequate regulatory compliance framework.

An effective regulatory compliance framework must provide independent supervision and controls and may comprise, among others:

• identification of Applicable Legislation and Standards that are applicable to their activities in the Foreign Exchange Market; • adequate processes designed to prevent and detect abusive practices, collusion or manipulation, fraud, and financial crimes and to mitigate material risk that may arise in the carrying out of activities in the Foreign Exchange Market; • the capture and retention of adequate records to achieve effective monitoring of compliance with Applicable Legislation and Standards; • properly defined reporting procedures for identified events; • consideration of the need to restrict access periodically to relevant personnel, such as mandatory vacations in order to facilitate the detection of possible fraudulent conduct; • the provision of guidelines and advice to senior management and personnel regarding the proper application of Applicable Legislation, external codes, and other relevant guides in the form of policies and procedures and other documents such as regulatory compliance manuals and internal codes of conduct; • training and/or confirmation processes in order to promote awareness and regulatory compliance with Applicable Legislation and Standards; • implementation and use of adequate regulatory compliance programs (for example, the establishment of processes to monitor activities and operations on a daily basis), and • the periodic review and evaluation of regulatory compliance functions and controls, including mechanisms to alert senior management about failures or relevant deficiencies in those functions and controls. The governing body or the appropriate person(s) must monitor the timely resolution of any deficiency.

PRINCIPLE 26

22 OFFICIAL GAZETTE Wednesday, October 11, 2017

Market Participants must maintain an adequate risk management framework with internal systems and controls that allow them to identify and manage the foreign exchange risks to which they are exposed.

Effective risk management begins with the identification and understanding of the various types of risks to which Market Participants are exposed (see the section on Different Types of Risks) and commonly involves the establishment of limits on risk-taking and monitoring mechanisms, as well as the adoption of practices to mitigate risk and other prudential practices. An effective risk management framework may comprise, among others:

• an appropriate and well-documented process for the approval of the establishment of risk limits; • a comprehensive and well-documented strategy for the identification, measurement, aggregation, and monitoring of risks across all activities involved in the foreign exchange business, including, for example, specific risks of a Market Participant that acts as an intermediary for Client operations acting as a Prime Broker service or that provides them with market access; • documented policies, procedures, and controls, which are reviewed and tested periodically, to manage and mitigate risks; • clear communication of risk management policy and controls within the institution in order to promote their knowledge and compliance, as well as processes and programs to facilitate the understanding of such policies and controls by personnel; • information systems that facilitate effective monitoring and timely reporting of risks; • robust incident management, including appropriate actions to report to higher hierarchical levels, adopt mitigation measures, and lessons learned; • robust risk assessment for all products, services, and procedures in order to identify new or emerging risks (and approval procedures for new products, services, and procedures); • sound accounting policies that include prudent and consistent valuation methods and procedures, and • a sufficiently robust risk control self-assessment process that includes processes to remediate identified failures or deficiencies.

Some Market Participants provide credit intermediation and/or market access to other Market Participants, for example, Prime Brokerage Services and Electronic Trading Platforms. These Market Participants must have a risk management and regulatory compliance framework that takes this activity into consideration. Additionally, these Market Participants are encouraged to engage in continuous dialogue with those to whom they provide credit intermediation and/or market access in order to limit expectations regarding proper behavior in the market.

PRINCIPLE 27

Market Participants must have practices to limit, monitor, and control risks associated with their operational activity in the Foreign Exchange Market.

These practices may comprise, without limitation:

• Regularly monitor operational activities, including, when appropriate, the internal identification and reporting of failed, cancelled, or erroneous operations. • Automated or manual monitoring systems to detect actual or potential misconduct and market manipulation. Relevant personnel must be qualified to detect operation patterns that may indicate unfair or manipulative practices. Market Participants may use certain statistics or metrics to detect behaviors that require additional review, such as out-of-market rates, repetitive orders, and unusually small or large orders. There must be appropriate processes that allow for the timely review and reporting of these suspicious practices to higher hierarchical levels within the organization when appropriate;

Wednesday, October 11, 2017 OFFICIAL GAZETTE 23

• Verification of the valuations used for risk management and for accounting purposes, carried out by personnel independent of the business area that incurs the risk. • Presentation of independent reports, periodically and timely, of risk positions and profit/loss statements of traders to the area in charge of risk management or to senior management, as appropriate, including a review of considerable deviations in losses/profits relative to expected levels. • Timely and accurate capture of operations in order to calculate risk exposures in a precise and timely manner for monitoring purposes (see Principle 36). • Periodic reconciliations of front-office, middle-office, and back-office systems, of identified discrepancies and their resolution monitored by personnel independent of the business unit. • Timely reporting to the governing body in charge of management or individual(s) when risk limits are exceeded, including corrective actions in order to return exposures to their limits, as well as the adoption of any preventive measures to prevent recurrence. • Appropriate controls for the proper sending of orders or quotes, such as moderators, reducers, or automatic electronic order switches (kill switches or throttles). These controls must be designed to prevent the entry or transmission of erroneous orders or quotes that exceed the predefined size, price parameters, and financial exposure thresholds.

Market Participants must be aware of the risks of relying on a single source of liquidity and must incorporate contingency plans when appropriate.

PRINCIPLE 28

Market Participants must have processes to independently review the effectiveness and adherence to risk management and regulatory compliance functions.

• An independent review must be carried out periodically where any findings must be recorded and corresponding corrective actions must be followed up. • All material risks related to Foreign Exchange Market activities must be covered, using an appropriate evaluation methodology. • The review team must have the necessary authorities and support, including adequate personnel with sufficient experience and knowledge. • Findings must be reported to the appropriate hierarchical level for review and follow-up; the foregoing may be carried out by the audit area when appropriate.

Main Types of Risk

Market Participants may incur different risks and to varying degrees, depending on the size and complexity of their activities in the Foreign Exchange Market, as well as the nature of their participation in said market. Considering the foregoing, the principles mentioned below provide guidelines on some sound practices relevant to the main types of risk related to foreign exchange activities.

CREDIT/COUNTERPARTY RISK

PRINCIPLE 29

Market Participants must have adequate procedures to manage their exposure to counterparty credit risk, including, when appropriate, the use of netting agreements and the granting of collateral, such as master netting agreements and credit support agreements.

The use of master netting agreements and credit support agreements contributes to strengthening the proper functioning of the Foreign Exchange Market. Other measures to manage counterparty credit risk include the accurate and timely evaluation of the credit quality of counterparties prior to the execution of each operation, sufficient diversification of exposure to counterparties when appropriate, the timely determination and monitoring of exposure limits to counterparties, as well as the acceptance of operations only when they are within previously approved limits. Credit limits must be determined independently of the front-office and must reflect the risk appetite established by the Market Participant.

Market Participants must maintain accurate records in relevant relationships with their counterparties. The foregoing may include records of conversations and written correspondence, while the policies for the retention of such records must be in accordance with Applicable Legislation.

MARKET RISK

PRINCIPLE 30

Market Participants must have processes to measure, monitor, report, and manage market risk in a precise and timely manner.

Changes in interest rates and exchange rate prices give rise to market risks, which could have an adverse effect on the financial conditions of Market Participants. The measurement of market risk must be based on generally accepted measurement techniques and concepts, including the use of stress testing. Such measurement techniques must be reviewed periodically and independently. The measurement of market risk must take into consideration the effects of hedges and diversification.

Market Participants must be aware of, monitor, and, when appropriate, mitigate the liquidity risk that may arise from their operations in the Foreign Exchange Market.

PRINCIPLE 31

Market Participants must have independent processes to carry out market valuation (mark-to-market) of their foreign exchange positions in order to measure their profits or losses, as well as the market risks that may arise from said positions.

Generally, the best guide for carrying out market valuation of foreign exchange positions are market quotation prices when they are available. When seeking to obtain external information for valuation purposes:

• useful sources of information include screen services, brokerage houses (brokers), and third-party price provider services; • a function independent of the front-office must review that prices and market valuations are determined accurately and periodically; • there must be an understanding of what the information represents, for example, if the price was the last price at which it was traded, when the last operation was executed, and if the prices were not from negotiated operations, how they were calculated; • Market Participants must have an agreed internal closing time for each day of operation on which end-of-day foreign exchange positions can be monitored and evaluated, and • When market reference prices are not available (for example, in the market valuation processes of complex derivative instruments or other exotic instruments), internal models, duly validated by an internal area that is independent of the front-office, may be used as a reference to carry out the appropriate valuation of risks.

OPERATIONAL RISK

PRINCIPLE 32

Market Participants must establish adequate processes to identify and manage operational risks that may arise from human errors, system failures, or inadequate processes or external events.

Market Participants must take into consideration operational risks generated by a global cross-border environment, such as different time zones or differences in uses and practices accepted by the industry. Operational risks may include those arising from human errors, willful misconduct, system failures, or unforeseen external circumstances.

Market Participants must adopt strict security measures in order to address the vulnerability of operational areas and infrastructure to possible operational disruptions, terrorism

Wednesday, October 11, 2017 OFFICIAL GAZETTE 25

or sabotage. Access to operational areas must be controlled with established procedures that specify time restrictions, security controls, and access authorizations issued by the appropriate management instances, when appropriate, for external visitors to operational areas or external visitors.

PRINCIPLE 33

Market Participants must have appropriate business continuity plans (BCPs) suited to the nature, size, and complexity of their foreign exchange businesses, and that can be implemented promptly and effectively in the event of large-scale disasters, loss of access to significant trading platforms, settlement services, as well as other critical services, or other market disruptions.

Business continuity plans may contain, among others, the following elements:

• Contingency plans to support business continuity through the Foreign Exchange Market, including plans related to the storage and use of information and, as applicable, procedures in case reference exchange rates are not available; • Periodic review, update, and testing of contingency plans, including drills so that officials in managerial positions and relevant personnel are familiar with contingency measures. The foregoing must include periodic reviews of potential scenarios that might require the activation of such plans; • Disaster recovery plans that identify essential operating systems and support procedures. All critical automated processes determined by the Market Participant must have their contingency procedures documented, automatically and/or manually; • The identification of external dependencies, including a proper understanding of the continuity plans of settlement system operators, and other infrastructures and critical service providers, as well as the inclusion of said plans, or other support processes, in the continuity plans of the Market Participant itself; • Emergency contact information for internal or external dependencies. Communication means must be secure, and • Alternate operational sites from which relevant personnel, systems, and operations can be accommodated and that must receive maintenance and be subject to periodic testing.

TECHNOLOGICAL RISK

PRINCIPLE 34

Market Participants must have procedures to resolve probable adverse outcomes derived from the use or dependence on technological systems (hardware and software).

Market Participants must have operating processes to clearly assign ownership of each system on which they depend and any changes to these must be approved in accordance with internal policies. All systems must be completely tested before being used within the production environment, preserving evidence for audit of all actions taken and available for review. This must be applicable for the development, testing, implementation, and subsequent updates of operating systems, as well as algorithms. Additionally, Market Participants must also be aware of the existence of broader risks that may exist and affect their activity in the Foreign Exchange Market, such as risks related to cybersecurity.

Market Participants that operate through Electronic Trading Platforms must monitor the intraday operational health of the platform (for example, utilization capacity) and must perform periodic capacity tests of critical systems to determine the system's capacity to process operations accurately, timely, and robustly.

Market Participants that participate in electronic operations must establish appropriate and proportional controls to reduce and mitigate the possibility of generating or acting on electronic quotes that may result in erroneous transactions or market disruptions such as out-of-market quotes or operations, finger errors, unintentional or non

26 DIARIO OFICIAL Wednesday, October 11, 2017 controlled that arises from technological failures, defects in operating logic, and unexpected or extreme market conditions. Market Participants must not generate or attempt to act deliberately on quotes above the technical capabilities of the recipient or against established protocols. The excessive frequency of messages that may approach or exceed the limits and capabilities of the platform must be controlled, for example, through the application of logic using moderators, reducers, or automatic switches (throttling) and/or flow controllers (circuit breakers). The identification of any failure or characteristic of the platform that could put its continuous operation at risk must be reported, appropriately, to higher hierarchical levels within the organization. The inclusion of third parties in the electronic flow between those participants who generate and act on quotes does not extinguish the legal or contractual obligations of any of the parties. Market Participants such as aggregators and interbank platforms that may carry out both the distribution and use of electronic quotes must comply with all relevant principles.

SETTLEMENT RISK PRINCIPLE 35 Market Participants must adopt prudential measures to manage and reduce their Settlement Risk, including expedient solutions to minimize disruption in operating activities. Settlement failures may expose Market Participants to market and credit risks. Market Participants must adopt policies and procedures designed to appropriately supervise and limit exposure to settlement risks with their counterparties. When applicable, Market Participants must consider payment by netting and the bilateral obligation of netting compensation to reduce Settlement Risks. See also the Confirmation and Settlement section for more details on this topic.

COMPLIANCE RISK PRINCIPLE 36 Market Participants must keep timely, consistent, and accurate records of their market activity to facilitate appropriate levels of transparency and audit and have processes to prevent the execution of unauthorized transactions. Market Participants must have accurate and timely records of orders and transactions that have been accepted and activated/executed, in order to create an effective auditable trail for review purposes, as well as to provide transparency to their Clients when appropriate. This record may include, among others, the following: date and time, product type, order type (for example, Stop Loss Orders; or an order where the price is subject to last look practice), quantity, price, operator, and Client identity. Market Participants must apply timestamps that are sufficiently granular and consistent so as to allow recording the moment the instruction is accepted and when it is activated/executed. Market Participants must have established processes to support the adequate storage of relevant information, as well as the preservation of its details. Information must be provided to the Client who so requests in order to provide sufficient transparency regarding their orders and transactions, as well as to facilitate informed decision-making regarding their interactions in the market. The information may also be used to resolve operational disputes. Records must allow Market Participants to effectively monitor their own compliance with internal policies, as well as their adherence to appropriate conduct standards adopted by the market. Market Participants must establish guidelines specifying the authorized personnel to conduct transactions after closing hours, or outside their facilities, as well as the limits and types of permitted transactions. Likewise, an expedient reporting system must be developed and appropriate records must be kept.

PRINCIPLE 37

Wednesday, October 11, 2017 DIARIO OFICIAL 27 Market Participants must conduct “Know Your Customer” (KYC) reviews to ensure that their counterparties’ transactions are not being used to facilitate money laundering, terrorist financing, or the commission of other criminal activities. Market Participants must adopt measures to reinforce the “Know Your Customer” principle (see Principle 52 in the Confirmation and Settlement section). Market Participants must have a clear understanding of the Applicable Legislation regarding the prevention of money laundering and terrorist financing. Market Participants must have internal processes to facilitate the expedient reporting of suspicious activities (for example, to the compliance officer or competent authorities, if necessary). Relevant personnel must receive effective training, in order to generate awareness of the seriousness of these activities, as well as of their obligation to report suspicious activities, without revealing their suspicions to the entity or the suspected individual. Said training must be updated regularly to keep pace with the changing methods adopted by money launderers.

PRINCIPLE 38 Market Participants must adopt reasonable policies and procedures (or governance schemes and controls) that limit access to transactions, either directly or indirectly, solely to authorized personnel. Market Participants must retain mandates granted to operators or trading desks, detailing the authorized products to trade, as well as conduct post-trade surveillance in order to detect, if applicable, the execution of transactions that exceed their mandate. Market Participants must periodically review access to transaction execution, in order to confirm that such access, both direct and indirect, is limited solely to authorized access. Market Participants must implement supervision practices to detect concealment or manipulation of (or the attempt to conceal or manipulate) gains and losses and/or the risk assumed in transactions or adjustments that are not made for a genuine business purpose.

PRINCIPLE 39 Market Participants must generate a timely and accurate record of executed transactions that allows for effective supervision and audit. At the request of a Client, Market Participants must be able to provide information related to the actions taken to carry out a particular transaction with said Client. It is expected that Clients requesting information from a Market Participant do so in a reasonable manner, avoiding the sending of spurious or superfluous requests. When requesting information, the Client must describe the reasons for their request. Market Participants must have established processes to respond to information requests from their Clients.

LEGAL RISK PRINCIPLE 40 Market Participants must have processes to identify and manage legal risks arising in relation to their transactions in the Foreign Exchange Market. Market Participants must understand how Applicable Legislation may affect the legality and enforcement of rights and obligations of other Market Participants and must adopt necessary measures to mitigate relevant legal risks. Market Participants must have legal agreements and contracts in place with their counterparties and use, when pertinent, standardized terms and conditions. Market Participants must keep a record of the current agreements and contracts they have with their counterparties. When executing their transactions, Market Participants must make clear if they are using standardized terms and if they are proposing modifications to them. When modifications are substantial, these must be agreed upon prior to each negotiation. When there are no standardized terms, Market Participants must be more careful in negotiating the respective terms.

28 DIARIO OFICIAL Wednesday, October 11, 2017 respective. Market Participants must make their best effort to formalize and finalize documentation as soon as possible.

CONSIDERATIONS RELATED TO PRIME BROKERAGE ACTIVITIES PRINCIPLE 41 Prime Brokerage Participants must strive to monitor and control trading permissions and real-time credit provision at all stages of transaction execution, consistent with their market activity profile in order to reduce the risk for all parties involved. Prime Brokerage Participants must strive to develop and/or implement robust control systems that include the allocation, monitoring, modification, and/or termination of credit limits and permissions granted in a timely manner. Likewise, they must adequately manage the risks associated with them.

• Prime Brokerage Clients must strive to have real-time monitoring of their available credit lines and permitted types of transactions, so that only transactions within permitted parameters are executed; • Executing dealers must strive to have real-time monitoring of limit designations in order to validate transaction execution requests prior to their execution, and • Prime Brokers must have reasonably designed systems to monitor transaction execution activity, as well as the limits applicable at the time of receiving a Transfer of Trade instruction from one broker to another (Give-Up Trades).

Prime Brokers must be able to accept transactions in accordance with the terms and conditions established in Prime Brokerage agreements and contracts, as well as in designation notifications. Prime Brokers must have policies and procedures reasonably designed to handle exceptions to limits, changes or modifications to established limits, as well as novations.

Confirmation and Settlement GUIDING PRINCIPLE: Market Participants are expected to implement robust, efficient, transparent post-trade processes that mitigate risk, in order to promote predictable, smooth, and timely settlement of Foreign Exchange Market transactions. The following principles refer to systems and processes regarding the confirmation and settlement of foreign exchange transactions. These principles must be applied in accordance with the size and complexity of the Market Participant’s activities in the Foreign Exchange Market and the nature of their participation therein.

I. Guiding Principles PRINCIPLE 42 Market Participants must be consistent among their operating practices, documentation, and policies for managing credit and legal risks. Operating practices (including foreign exchange transaction confirmation and settlement processes) must be consistent with legal documentation and any other type. Likewise, the use of credit risk mitigants must be consistent with said documentation and with the Market Participants’ credit risk policies.

PRINCIPLE 43

Wednesday, October 11, 2017 DIARIO OFICIAL 29 Market Participants must establish a robust framework to monitor and manage system capacity, both under normal and peak activity conditions. Market Participants must have, at a minimum, sufficient technical and operational capacity to process foreign exchange transactions comprehensively, both under normal market conditions and peak activity, without affecting the timeline for processing said transactions. Market Participants must have defined mechanisms to respond, in a timely manner, to extreme changes in demand, as required. Additionally, they must have clearly defined and documented capacity and performance management processes. These processes must be reviewed regularly, including external providers.

PRINCIPLE 44 Market Participants are encouraged to implement automatic and direct transmission of transaction execution information between their front-office systems and their operations management systems. Such transfer of information related to transaction execution must be carried out through secure interfaces in which the data transmitted from the transactions cannot be modified or deleted during transmission. When information cannot be transmitted automatically from their front-office to operations management systems, adequate controls must be implemented to capture, completely and accurately, in their operations management systems, the information of the executed transactions.

PRINCIPLE 45 Market Participants must execute any novation, modification, and/or cancellation of transactions under strict control conditions. The processes for novation, modification, and cancellation of transactions must be clearly defined and must consider maintaining separation between management and sales personnel and the transaction execution area. Reports on modifications and cancellations must be available to administrators of these areas on a regular basis.

II. Confirmation Process PRINCIPLE 46 Market Participants must confirm foreign exchange transactions as soon as possible and in a secure and efficient manner. Market Participants must confirm foreign exchange transactions as soon as possible once they have executed, modified, or cancelled them. The use of automated transaction confirmation systems is highly recommended, to the extent possible. Likewise, Market Participants must implement operating practices to segregate the responsibility derived from the confirmation of a transaction from the responsibility derived from the execution of the transactions. Confirmations must, when possible, be transmitted securely; the use of electronic and automated confirmations is recommended. To the extent possible, to confirm various foreign exchange products, standardized messages and formats widely accepted by the financial sector must be used. Transactions executed through an Interdealer Broker must be confirmed directly between both parties of the transaction. Market Participants must receive confirmation from the Interdealer Broker to help accurately record the transactions. Open communication media, such as email, can significantly increase the risk of sending fraudulent messages or disclosing Confidential Information to unauthorized persons. If confirmations are transmitted through said open communication media, they must comply with information security standards (see also Principle 23, Information Exchange). If Market Participants bilaterally decide to reconcile foreign exchange transactions using electronic platforms instead of the traditional reciprocal sending of confirmation messages, the exchange of data on foreign exchange transactions must be automated and must follow a direct flow between the transaction execution systems and the operations management systems. Strict controls must be established so that the information flow between the two systems is not altered and data cannot be manually deleted or modified. All agreements entered into by the parties to use electronic platforms to reconcile foreign exchange transactions instead of the traditional exchange of confirmation messages must be documented in the agreements entered into by the parties for this purpose.

PRINCIPLE 47 Market Participants must review, confirm, and assign block transactions as soon as possible. The details of block transactions must be reviewed and confirmed as soon as possible once they are executed. Investment advisors and other persons acting as Agents on behalf of multiple counterparties may execute block transactions that may subsequently be assigned to specific counterparties (the latter referred to as underlying). Prior to any assignment, each of the underlying counterparties in the block transactions must correspond to an authorized and existing counterparty for that intermediary who executed said transaction as the original counterparty (dealer-counterparty). Each transaction made subsequent to the assignment must be reported to the respective counterparty and confirmed as soon as possible.

PRINCIPLE 48 Market Participants must identify and resolve discrepancies in the confirmation and settlement of foreign exchange transactions as soon as possible. Market Participants who identify discrepancies between the confirmations or presumed foreign exchange transactions received and their own records must investigate internally and inform their counterparty in order to resolve said discrepancies as soon as possible. Market Participants must also carefully reconcile all presumed foreign exchange transactions reported to them, as well as notify issuers of unknown confirmations that the receiving Market Participant cannot assign against their internal records. Procedures must be established to report to higher hierarchical levels within the organization in order to urgently resolve unconfirmed transactions, as well as disputed contractual terms and conditions. Likewise, procedures must be established to detect and report adverse trends that may arise in the resolution of the disputes in question. The aforementioned processes for reporting to higher hierarchical levels within the organization must include notification to the area in charge of transaction execution, as well as any other relevant internal area, in order for all of them to be aware of the company’s counterparties that may have foreign exchange transaction confirmation practices that do not align with best practices. Executive officials must receive periodic information on the number of unconfirmed transactions, as well as the intervals in which they occur, so that they can evaluate the level of operational risk generated by maintaining business relationships with the company’s counterparties.

PRINCIPLE 49 Market Participants must be aware of the particular characteristics of the confirmation and processing of specific transactions in the lifecycle of each foreign exchange product. Market Participants must establish clear policies and procedures for the confirmation, exercise, and settlement of all foreign exchange products they trade in the Foreign Exchange Market, including those with unique characteristics. Where applicable, Market Participants must train the personnel responsible for operations on the terms and conditions applicable to the various foreign exchange products, as well as on the protocols and procedures related to the lifecycle events of each product in order to reduce operational risk. Likewise, Market Participants must know in detail the appropriate terminology, contractual clauses, and market practices associated with the various foreign exchange products.

III. Netting Compensation and Settlement Processes PRINCIPLE 50

Wednesday, October 11, 2017 OFFICIAL GAZETTE 31 Market Participants must measure and monitor their Settlement Risk and, to the extent possible, attempt to mitigate it. Market Participants must develop timely and accurate methods to quantify their Settlement Risk. The management of each area involved in foreign exchange operations must have at least a high level of understanding of the settlement process and of the tools that can be used to mitigate Settlement Risk. The use of netting in the settlement of foreign exchange operations (including the use of automated settlement and netting systems) is recommended. Whenever Market Participants use net settlement processes, these must be supported by adequate bilateral documentation. Netting may be performed at the bilateral or multilateral level. The initial confirmation of the operations to be netted must be carried out in a manner similar to how it is done for any other foreign exchange operation. All initial operations must be confirmed before being included in netting calculations. In the case of bilateral netting, the procedures to net the settlement values used by Market Participants must also include a procedure to confirm the bilateral net amounts for each currency, obtained at a certain time of day or cut-off point, previously agreed upon with the corresponding counterparty. In general, whenever possible, settlement services that reduce Settlement Risk should be used, including payment versus payment (PVP) mechanisms.

PRINCIPLE 51 Market Participants must use Standing Settlement Instructions (SSI) Whenever possible, SSI must be implemented for all products and currencies traded with those counterparties with which Market Participants maintain a business relationship. The responsibility for entering, authenticating, and maintaining SSI must be held by employees who are clearly segregated from personnel responsible for sales and trade execution, and ideally, also from operational personnel responsible for trade settlement. SSI must be stored securely and be available for use with all settlement systems to facilitate straight-through processing. The use of multiple SSI with the same counterparty for the same product type and currency is not recommended. Due to the Settlement Risk implied by the use of multiple SSI with the same counterparty for the same product type and currency, it must be subject to adequate controls. SSI must be configured with a specific start date, and capture records and their modifications (including audit trails) must have the relevant approvals, such as review by at least two people. Counterparties must be notified of any changes to SSI with sufficient advance notice before implementation. Any changes, notifications, as well as any new SSI, must be sent, whenever possible, through authenticated and standardized messages. All operations must be settled according to the SSI in effect on the value date of the operation in question. Operations pending settlement at the time SSI are modified (and whose value date coincides with or is after the start date for the new SSI) must be reconfirmed before carrying out the corresponding settlement (either bilaterally or via transmission of authenticated messages). In cases where SSI are not available (or existing SSI are not appropriate for a particular foreign exchange operation), alternative settlement instructions to be used must be delivered as soon as possible. Such instructions must be exchanged through an authenticated message, or by other secure means and verified subsequently as part of the operation confirmation process.

PRINCIPLE 52 Market Participants must request Direct Payments. Market Participants must request Direct Payments when conducting foreign exchange operations and recognize that Third-Party Payments can significantly increase operational risk and potentially expose all parties involved to money laundering or other fraudulent activities. Market Participants that make Third-Party Payments must have clearly defined policies regarding their use, and such payments must invariably comply with said policies. Such policies must require, at a minimum, that the payer has a clear understanding of the reasons for making Third-Party Payments and of the risk assessments that must be carried out regarding money laundering, counter-terrorist financing, as well as those provided for in Applicable Legislation. Agreements on Third-Party Payments must be duly documented between the involved counterparties prior to the initiation of operations. In the event that a Third-Party Payment is requested after the conclusion of an operation, the same duty of diligence exercised previously must be applied. Furthermore, authorizations must be processed and, where applicable, obtained in matters of regulatory compliance and risk management.

PRINCIPLE 53 Market Participants must have adequate systems to allow them to project, monitor, and manage their intraday and end-of-day funding requirements, in order to reduce possible complications during settlement processes. Market Participants must have clear procedures describing how each of the accounts they use to settle foreign exchange operations will be funded. Whenever possible, Market Participants that have accounts denominated in foreign currencies in other institutions (also known as "nostro" accounts) must calculate the balance of said accounts in Real Time, including all operations, cancellations, and modifications for each tenor (value date). This is to reduce the risk of overdraft in the aforementioned "nostro" accounts. Market Participants must send payment instructions as soon as possible, taking into account different time zones, as well as cut-off times for receiving instructions that their correspondents may have set. Market Participants must inform about expected receipts (whenever possible, through standardized messages), so that banks where they maintain accounts denominated in foreign currencies (known as "nostro banks") can identify and correct payment errors in a timely manner, as well as help in formulating procedures to properly inform senior management levels within the organization. Market Participants must communicate with their "nostro banks" to process cancellations and modifications of payment instructions. Market Participants must clearly differentiate between cases where they can cancel or modify payment instructions unilaterally, and those where they must negotiate with their "nostro banks" so that cut-off times are as close as possible to the start of the settlement cycle for the relevant currencies.

IV. Account Reconciliation Processes

PRINCIPLE 54 Market Participants must carry out their account reconciliation processes in a timely manner. Market Participants must periodically carry out routine reconciliation processes of expected flows against actual cash flows. The faster the aforementioned reconciliations are carried out, the sooner Market Participants can detect erroneous or missing entries and know their true accounting balances that allow them to take necessary measures and confirm that their accounts have sufficient funds. Reconciliations must be carried out by personnel not involved in the processing of operations that could affect the balances of accounts maintained in correspondent banks. The complete reconciliation of "nostro" accounts must be carried out as soon as possible. To this end, Market Participants must have the capacity to receive automatic transmissions of activity movements of the "nostro" type and implement automated "nostro" reconciliation systems. Market Participants must also have measures to resolve any disputes. Reporting procedures to senior management levels within the organization must be implemented and initiated to address any un-reconciled cash flow and/or unsettled operation.

PRINCIPLE 55 Market Participants must identify any discrepancies regarding settlements and present compensation claims in a timely manner.

Wednesday, October 11, 2017 OFFICIAL GAZETTE 33 Market Participants must establish procedures to detect the non-receipt of payments, delays in their receipt, receipt of incorrect amounts, duplicate and lost payments, as well as to notify the involved parties of these events. Likewise, they must have valid procedures to report to senior management levels within the organization in order to establish contact with counterparties that have not made the corresponding payments and, more broadly, to resolve any disputes that have arisen. The aforementioned reporting procedures to senior management levels must be aligned with the commercial risk that could result in failures and disputes. Market Participants that have not made a payment on the corresponding value date, or that have received a payment by error (for example, a lost or duplicate payment), must make the necessary adjustments to apply the correct value or pay compensation costs in a timely manner. All cases of non-receipt of payment must be reported immediately to the foreign exchange trading units and/or business units. Market Participants must update their settlement exposure with the most recent projections of their cash flow movements. Market Participants might consider limiting their business relationships with those counterparties that have a history of settlement problems and continue to default on their payments.

ANNEX 1 Examples The examples presented in the Global Code of Conduct are intended to clarify the principles and show the situations in which the principles may apply. The examples are complex and do not seek to be precise rules or prescriptive or exhaustive guidelines, nor should they be understood or interpreted as such. Nor is it intended that the examples grant exceptions or be an exhaustive list of situations that may arise. In fact, it is expressly recognized that facts and circumstances may and will vary. In some examples, specific market roles are used to provide a more realistic example; however, the conduct exemplified applies to all Market Participants. The examples are grouped in accordance with the guiding principles and in terms of the principle being exemplified. Notwithstanding the foregoing, in several cases, the example may be applied to various guiding principles. Examples marked with "x" show conduct that should be avoided; examples marked with "?" indicate conduct that the Global Code of Conduct seeks to foster and reinforce. It is intended to update this Annex as the Foreign Exchange Market evolves. Similarly to other sections of the Global Code of Conduct, Market Participants must interpret these examples in a professional and responsible manner. Market Participants are expected to use their good judgment and act in an ethical and professional manner.

EXECUTION Market Participants must have clear the roles with which they act. (PRINCIPLE 8) ✓ A Client requests a Market Participant to buy EUR/NOK on its behalf in the market. The Market Participant and the Client have an agreement in which it is established that the former will act as Agent and will add its fees. The Market Participant executes the order in the market, showing the execution analysis and adding the fee. Market Participants must have clear the roles with which they act. In this example, the parties specified in advance the roles with which they will act and that the Market Participant will add the fee cost. Specifically, the Market Participant executes the Client's request in its capacity as agent and is transparent about the nature of the execution and the associated cost. ✓ A Client requests a Market Participant to buy EUR/NOK as a Market Order. The Market Participant and the Client have a relationship through the Principal figure stipulated in their terms and conditions. The Market Participant fills the Client's order in accordance with the agreed terms, possibly using its own inventory and liquidity available in the market. Market Participants must have clear the roles with which they act. In this example, the parties have clearly specified, in advance, the roles with which they act, disclosing in advance the terms and conditions under which the Market Participant will interact with the Client. Specifically, the Market Participant and the Client, acting as Principals, agreed to execute the operation. Market Participants must handle Client orders in an equitable and transparent manner. (PRINCIPLES 9 AND 10)

34 OFFICIAL GAZETTE Wednesday, October 11, 2017 ✓ A bank receives an order for a large amount from a fund (Client) to sell EUR/PLN at the reference rate (fix) of 4 p.m. London time zone. In accordance with the agreed terms and conditions, the bank will act as Principal and may hedge foreign exchange operations depending on market conditions. The bank hedges part of the ordered amounts before the time window for the determination of the reference rate (fixing window), as it estimates that the duration of said five-minute period is too short to settle the total amount of the operation without affecting the market rate to the detriment of the Client. The bank also retains part of the risk in its book and does not trade the total amount of the order in the market, thereby reducing the impact on the market from the Client's order on the reference rate, with the intention of benefiting the Client. Market Participants are expected to manage orders with equity and transparency. In this example, the Client and the bank agreed that the latter would act as Principal. The bank executes the operation in a way that benefits the Client by reducing the impact of the Client's order on the market. X A Market Participant has several orders from various Clients to buy USD/ZAR. The Market Participant has informed its Clients about its electronic order processing policy in the order in which it receives them from its Clients. The Market Participant executes another client's order first despite having received it after other orders. Market Participants must make their Clients aware of the factors that affect the way orders are handled and executed, including whether orders are aggregated or prioritized according to time, and must have established clear standards that seek to provide an equitable and transparent result for the Client. In this example, the Market Participant has made the Client aware of its order processing policy although it violates said policy when executing orders in a non-sequential manner. X A Client calls a Market Participant to execute a series of foreign exchange operations, mentioning that these are carried out under the agency contract they have concluded. The agency contract includes a previously negotiated fee. When executing the operations, the execution desk of the Market Participant adds an undisclosed differential for each operation it executes, causing the Client to pay an additional amount over the previously negotiated fee cost. A Market Participant that handles Client orders in its role as Agent must be transparent with its Clients about its terms and conditions, which must clearly establish fee and commission costs. In this example, the Market Participant charges a fee in excess of what was previously negotiated and does not make it known to the Client. X Operator A tells Voice Brokerage Service B that it has a large amount to execute at a reference rate (fix) and needs help to establish a favorable rate for its benefit. Voice Brokerage Service B informs Operator C, who has a similar order, and all agree to combine their orders to create a greater impact during or prior to the reference rate (fix) determination window. Market Participants must handle orders in an equitable and transparent manner, must not reveal operational information relative to Clients (Principle 19) and must behave in an ethical and professional manner (Principles 1 and 2). Collusion to intentionally influence the reference rate (fix), illustrated in this example, is neither ethical nor professional. The disclosure of information regarding the Client's operations to external parties is non-competitive conduct that undermines the fair and effective functioning of the Foreign Exchange Market. ✓ A corporate treasury contacts a bank to buy a large amount of GBP/SEK at the reference rate (fix) of 11:00 a.m. the following morning, New York time zone. The Client and the bank agree that the latter will act as Principal and may hedge the transaction. Taking into consideration that liquidity around 11:00 a.m. is not good enough to absorb the order, the bank starts buying small amounts of GBP/SEK during the morning in order to limit the impact on the market of the operation. The bank fills the Client's order at 11:00 a.m. at the reference rate (fix), using its inventory. Market Participants must handle Client orders in an equitable and transparent manner. In this example, the Market Participant strives to achieve an equitable result for its Client. X A Client instructs a Market Participant to buy 5 billion USD/JPY at the reference rate (fix) of 4 p.m. as part of a merger and acquisition operation

Cross-border. After receiving the instruction, but before 4 p.m., the Market Participant buys 300 million USD/JPY for its own book and not as part of a risk management strategy for the transaction. After the determination of the reference exchange rate (fix) at 4 p.m., the Market Participant sells 300 million USD/JPY for its own book, with the sole purpose of taking advantage of the price movement caused by the Client's order.

Market Participants must handle Client orders in an equitable and transparent manner, and Confidential Information obtained from a Client may only be used for the specific purpose for which it was provided. In this example, the Market Participant uses its knowledge of the Client's order and the expected market impact of the Fixing Order to obtain profits, potentially harming and disadvantaging the Client.

✓ A bank is anticipating an order related to a probable merger and acquisition transaction on behalf of a Client involving the sale of a large amount of a specific currency. The bank recognizes that this transaction may have a considerable impact on the market and, therefore, proactively involves the Client in discussing a potential execution strategy, which includes, but is not limited to, the reconciliation of internal flows, timing of execution, use of algorithms, and use of Pre-Hedging. The bank trades in anticipation of the order with the Client's consent and with the intention of managing the risk associated with the anticipated transaction and seeking to obtain a better outcome for the Client.

Market Participants that handle orders that by their size could potentially have relevant market impacts must do so with particular attention and care. The order described in this example is large and may have a relevant impact on the market, so the parties involved take various steps to supervise and execute it appropriately.

Market Participants shall only perform Pre-Hedging when acting as Principal and must do so in an equitable and transparent manner. (PRINCIPLE 11)

✓ A bank has disclosed to a Client acting as Principal that it may perform Pre-Hedging on the Client's orders. The bank has a large Stop Loss Order from the Client that is expected to be executed. The bank expects that there will be similar orders in the market at this important technical level and recognizes the risk of substantial slippage in the price during its execution. The bank decides to perform partial Pre-Hedging and begins to buy in advance without the intention of increasing the market price. However, the market reaches a maximum above the Stop Loss level, due to purchases by other Market Participants that are triggered when the market price reaches the technical level. The order is triggered but, as a result of the Pre-Hedging, the bank can provide an execution price close to the Stop Loss level.

Market Participants shall only perform Pre-Hedging on Client orders when acting as Principal and when the practice is used with the intention of benefiting the Client. Stop Loss Orders are subject to the condition of breaking a specific execution level, and in many cases, orders are placed at significant levels in the market with the potential to generate substantial slippage when this level is reached. In this example, the bank has used Pre-Hedging to have an inventory in advance. The bank is better positioned than it would be if it had not performed the Pre-Hedging, which allows it to protect its Client from substantial slippage in the price at the time of executing the order and, therefore, benefit it.

✓ A Market Participant has disclosed to a Client acting as Principal that it may perform Pre-Hedging on the Client's anticipated orders. The Client requests the Market Participant for a buy position for a large amount of USD/CAD during a period of the day with illiquidity. Due to liquidity conditions and the size of the anticipated order, the Market Participant expects that it will have to quote a buy price significantly lower than what is shown on the Interbank Brokerage Service (IDB) screen. However, before determining its quote, and with the purpose of improving its price to the Client, the Market Participant tests market liquidity by selling a small amount through the Interbank Brokerage Service (IDB). The Market Participant quotes the Client a buy price for the total amount, taking into consideration, for the benefit of the Client, the amount already sold.

36 OFFICIAL GAZETTE Wednesday, October 11, 2017

Market Participants shall only perform Pre-Hedging to cover anticipated orders of their Client when acting as Principals and without the intention of creating a disadvantage for the Client. In this example, the Market Participant has performed Pre-Hedging on a part of the order to manage the potential risk associated with the anticipated order and to benefit the Client, specifically by taking into consideration the price benefit of the amount covered through Pre-Hedging for the Client.

Market Participants shall not solicit transactions, create orders, or provide prices with the intention of creating a disruption in the functioning of the market or impeding price discovery. (PRINCIPLE 12)

X A Market Participant wishes to sell a large amount of USD/MXN. Before doing so, the Market Participant executes a number of successive small purchases of USD/MXN on a widely consulted Electronic Trading Platform with the intention of increasing the market price and inducing other Market Participants to buy USD. Subsequently, the Market Participant executes the original sell order on one or more Electronic Trading Platforms at a higher price.

Market Participants shall not solicit transactions or create orders with the intention of causing a disruption in the functioning of the market or impeding the price discovery process, including actions aimed at giving a false impression of the market price, depth, or liquidity. This example illustrates a strategy aimed at causing artificial price movements. While Market Participants generally split large transactions to mitigate the impact of a transaction, in this case, the small transactions are performed with the intention of provoking an artificial price movement. The Market Participant plans to sell a large amount of currency but performs small buy transactions to create a false impression in the market.

X A Market Participant wishes to sell a large amount of USD/MXN. Repeatedly, it shows small sell quotes on a widely consulted Electronic Trading Platform. The Market Participant chooses to use another dealing code of the same institution on the same Electronic Trading Platform in order to lift these successive larger orders with the intention of deceiving the market.

This is an extension of the previous example. The conduct gives the false impression that multiple counterparties are participating in a rally when in reality they come from the same institution. The use of these strategies must be avoided.

X A Client can gain by raising the 4 p.m. reference exchange rate (fix) in relation to a particular currency pair. It calls a bank at 3:45 p.m. and places a Fixing Order and then instructs the bank to “buy the amount as soon as possible in the first minute of the reference exchange rate calculation window.”

Market Participants shall not require transactions or create orders with the intention of creating a disruption in the functioning of the market or impeding the price discovery process, including the adoption of strategies aimed at creating a false impression of the market price, depth, or liquidity. The Client's request in this example is with the intention of creating a false impression of the market price and its depth.

X A hedge fund has a long position on an exotic Put option in euros. The currency has been weakening during the New York session towards the knock-in level. Knowing that liquidity will continue to decrease during the Asian session, due to a holiday, and in order to reach the knock-in level of the option, the hedge fund leaves open a large Stop Loss sell order for the Asian open with Bank A at a fair price above the knock-in level. At the same time, the hedge fund leaves a limit buy order with Bank B for the same amount in euros but at a level just below the knock-in level. Neither Bank A nor Bank B knows that the hedge fund has a long position on an exotic Put option in euros.

Market Participants shall not solicit transactions or create orders with the intention of creating artificial price movements. In this example, the hedge fund has sought to benefit (by achieving the option's knock-in level (“to knock-in the option”)) by leaving orders designed to cause artificial price movements inconsistent with the prevailing market conditions.

Wednesday, October 11, 2017 OFFICIAL GAZETTE 37

X An Interbank Brokerage Service (IDB) announces a price without having received instruction from a brokerage house, a dealing bank, or another financial institution. When a dealer attempts to peg or lift the price, the Interbank Brokerage Service (IDB) informs the dealer that the quote has already been traded by another participant or has been withdrawn.

Market Participants shall not provide prices with the intention of impeding the price discovery process, including strategies designed to create a false impression of the market price, depth, or liquidity. The practice illustrated in this example, sometimes known as “flying a price”, is a pricing strategy that intentionally gives a false impression that there is greater liquidity than is actually available. It can occur in an Interbank Brokerage Service (IDB) that operates by voice or electronically, or through an Electronic Trading Platform that falsely attributes its prices to another participant. This conduct is also inappropriate for other types of Market Participants.

Market Participants must understand how reference prices, including highs and lows, are set in relation to their transactions and/or orders. (PRINCIPLE 13)

✓ A market maker reveals to a Client how reference prices will be set. After a steep drop in USD/JPY, the market maker executes the Client's Stop Loss Order using a reference rate in accordance with its own policy and prior disclosure.

Market Participants must understand how reference prices are set in relation to their transactions and orders. In this example, the market maker reveals to the Client how reference prices will be set.

Margins must be equitable and reasonable. (PRINCIPLE 14)

X A bank receives from a Client a Stop Loss Order to sell GBP/USD at a certain level. When that level is being traded in the market, the bank executes the Stop Loss Order with a slight slippage. Notwithstanding the foregoing, the bank fills the Client's order at a slightly lower exchange rate after charging the Margin and without having previously informed the Client that the total execution price of a Stop Loss Order was subject to a Margin.

The Margin must be equitable and reasonable, and Market Participants must promote transparency by informing their Clients that their final transaction price may include a Margin and that it may impact the price and execution of orders triggered at a specific level. In this example, the bank has not revealed to the Client how the Margin will affect the total price of the order.

X A bank charges a higher margin to a company than the margin it charges to other companies of the same size, credit risk, and business relationship, taking advantage of the company's lack of sophistication to understand and question the price granted by the bank.

The Margin shall be equitable and reasonable and may reflect various considerations, such as risks assumed, costs incurred, and services provided to a particular Client, factors related to a specific transaction, and the general relationship with the Client. The application of the Margin in this example is not equitable or reasonable, as it discriminates between Clients based on the level of sophistication. In the following example, the difference in the Margin charged to each of the Clients is motivated by differences in the general relationship with the Client, in this case, by the volume of business.

✓ A bank charges companies of similar size and credit level different Margins due to differences in the dimension of their relationship with Clients. For example, the volume of business that these Clients operate with the bank is of very different magnitudes.

Market Participants must identify and resolve their operational discrepancies as soon as possible in order to contribute to the proper functioning of the Foreign Exchange Market. (PRINCIPLE 15)

X A hedge fund executes a transaction through an executing dealer to perform a Give Up of a transaction from a brokerage house to its Prime Broker. The terms of the transaction provided by the hedge fund to its Prime Broker cannot be reconciled with those provided by the executing dealer. When notified by the Prime Broker that there is a discrepancy in the transaction details, the hedge fund responds that the executing dealer has made a mistake and that the Prime Broker must resolve the operational discrepancy with the executing dealer.

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Market Participants must resolve discrepancies as soon as possible. In particular, Clients of Prime Brokers and dealers are responsible for resolving transaction discrepancies to make timely modifications and reconcile transaction terms through the Prime Broker. In this example, the hedge fund assigns the responsibility for resolving the discrepancy to the Prime Broker. Notwithstanding the foregoing, the hedge fund should have contacted the executing dealer directly to resolve this discrepancy, since the identity of the counterparties is known by the hedge fund and the dealer.

✓ A Client uses an Electronic Trading Platform to execute foreign exchange transactions on behalf of its Prime Broker. The rules of the Electronic Trading Platform do not allow revealing to the Client the name of the Operator whose orders correlate with those of the Client itself. The Electronic Trading Platform confirms a transaction at a price that differs from the Client's records. The Electronic Trading Platform and the Prime Broker work together with the Client to provide a prompt solution to the operational discrepancy. Specifically, the Electronic Trading Platform contacts the operator while maintaining the Client's confidentiality.

Market Participants must resolve operational discrepancies as soon as possible and protect Confidential Information, as established in Principle 20. When access to the market can be obtained anonymously, the grantor of access must help resolve operational discrepancies. In this example, although the Client and the operator are responsible for resolving the discrepancy in the transaction, they require help from the Prime Broker and the Electronic Trading Platform since the Client and the Operator do not know, and should not know, the name of the other.

Market Participants that employ the last look practice must be transparent in its use and provide relevant information to their Clients. (PRINCIPLE 17)

X A Market Participant sends a transaction request to an anonymous liquidity provider to buy 1 million EUR/USD at a price of 13 through an Electronic Trading Platform while the displayed price is 12/13. It is understood that this transaction request is subject to a last look window before being accepted and confirmed by the anonymous liquidity provider. During this window, the liquidity provider places buy orders at levels lower than the price of 13. If these orders are filled, the liquidity provider confirms and fills the Market Participant's transaction request, but if the buy orders are not filled, it does not attend to the Market Participant's transaction request.

Market Participants shall only use the last look practice as a risk control mechanism to verify factors such as validity and price. In this example, the liquidity provider improperly uses the information contained in the Client's transaction request to determine if it can obtain a profit and has no intention of filling the order unless it can obtain a profit.

✓ A Client sends various transaction requests subject to a last look window, and its liquidity provider has made known the purposes for which the last look practice may be used. The Client reviews information related to the average fill ratios in such transactions. The information suggests that the average is lower than expected, and the Client goes to its liquidity provider to discuss the reasons for this.

Market Participants that employ the last look practice must be transparent regarding its use and provide appropriate information to their Clients. It is also good practice to be able to engage in conversations with Clients about how their orders have been handled. In this example, the Market Participant's transparency has allowed the Client to make an informed decision about how their orders are handled and promotes dialogue between the two parties.

Market Participants that provide algorithm-based transactions or aggregation services to their Clients must provide them with adequate information on how they operate. (PRINCIPLE 18)

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X An aggregator routes an order preferentially through an Electronic Trading Platform that offers brokerage rebates. The aggregator's provider does not inform Clients that brokerage rebates affect preferences in the choice of the channel through which orders are routed.

Market Participants providing aggregation services to Clients must adequately inform them of how they operate; in particular, they must inform them generally of how the order of preference in the routing of services is determined. In this example, the service aggregation provider has not disclosed a determining factor in the order of preference for service routing.

EXCHANGE OF INFORMATION

Market Participants must identify and protect Confidential Information (PRINCIPLES 19 and 20).

X Asset manager to a market-making bank: Bank ABC just called me to tell me they have an Interest (Axe) in buying EUR/SEK. Are you seeing buys as well?

Market Participants must not reveal or request Confidential Information, including information about the Interests (Axes) of their Clients or about operational activity. In the previous example, the asset manager reveals and requests Confidential Information, in this case, the Interest (Axe) of another bank. In the following example, the asset manager refrains from requesting Confidential Information.

✓ Bank ABC to an asset manager: We have an Interest (Axe) in executing a spot transaction of EUR/SEK. Do you have any interest? Asset manager to market-making bank: Thanks for calling but we have no interest today in EUR/SEK.

X Hedge fund to market-making bank: Are you long in British Pounds?

Market Participants must not request Confidential Information, including information about current positioning or operational activity without a valid reason for doing so. In the following example, the hedge fund asks about a market perspective and not about specific positionings.

✓ Hedge fund to market-making bank: What do you think about the British pound at these levels?

X A Client requests a bank to provide a quote for 150 million USD/MXN. The bank is not an active market-maker in this currency pair. The market-making bank calls another market-making bank: I am being asked for a two-sided quote (buy and sell prices) for 150 million USD/MXN. Could you show me your USD/MXN pricing matrix so I can get an idea of what spread to quote?

Market Participants must not reveal or request Confidential Information, including information about the operational activity of their Clients. In the previous example, the market-making bank reveals and requests Confidential Information—in this case, the Client's interest and proprietary information about a pricing matrix, respectively. In the following example, the bank only requests the information it requires according to its needs.

✓ A Client requests a bank to provide a quote for 150 million USD/MXN. The bank does not have a franchise for this currency pair, so this market-maker calls another market-making bank: Can you give me the buy and sell quote for 150 million USD/MXN?

X A bank has implemented an institutional policy designating operational recommendations produced by its Foreign Exchange Market Research Department, which are confidential until they are released to all its Clients simultaneously. Bank's Foreign Exchange Market Analyst to a hedge fund: Our opinion on USD/JPY has changed in accordance with new forecasts regarding central bank reference rates, and later today I will publish a new positive (bullish) operational recommendation.

Market Participants must not reveal Confidential Information. In this example, the analyst has revealed certain Confidential Information—its operational recommendation—to an external party before its publication.

40 OFFICIAL GAZETTE Wednesday, October 11, 2017

its publication. In the following example, the Foreign Exchange Market Analyst reveals research work after it has been published.

✓ Bank's Foreign Exchange Market Analyst to hedge fund: I am calling to verify if you received our positive (bullish) recommendation on USD/JPY published an hour ago in accordance with the new forecasts of central bank reference rates.

X A hedge fund manager attends a portfolio review with a large Client. During the review, the manager learns that the Client will soon change part of its positioning in a currency cross to another pair. The manager is asked for advice but is not granted an allocation mandate. Upon leaving the meeting, the manager calls his trading desk to inform him of this imminent transaction.

Market Participants must not reveal Confidential Information except to those persons who have a valid reason to receive it. In particular, information obtained from a Client can only be used for the specific purpose for which it was provided. In this example, the change in currency positioning is Confidential Information and has been revealed to the hedge fund manager for advisory purposes only. This information must not be revealed to the trading desk.

X A fund asks a bank to work a buy order for a large amount of EUR/PLN at a reference rate (fixing). Immediately after the call, the bank contacts another hedge fund that is its Client and says, “I have a buy order for a large amount of EUR/PLN to work before the fixing determination for a Client. I think this may move the market up in the next 20 minutes, so I can work a flow for you too.”

Past, present, and future operational activity of a Client is Confidential Information that cannot be revealed to other Market Participants.

Market Participants must communicate clearly, accurately, professionally, and without being misleading. (PRINCIPLE 21)

X An asset manager calls three banks and says, “Could you give me a price for 50 million GBP/USD, please? This is my total amount.” The asset manager buys 50 million GBP from each of the three banks for a total of 150 million GBP.

Market Participants must communicate clearly, accurately, professionally, and without being misleading. In this example, the asset manager deliberately misleads the banks to secure a better price. If asked, the asset manager could refuse to reveal whether its request is for the total amount.

X A sell-side institution has a large amount of an illiquid currency to sell. A trader at the institution contacts several Market Participants, telling them that they are hearing that a large purchase of this currency will take place, when in fact, it is not the case.

Market Participants must communicate in a manner that is not misleading. In this example, the trader communicates false information with the intention of moving the market to their own interest.

Market Participants must communicate Market Color appropriately. (PRINCIPLE 22)

✓ A corporate Client has left a 24-hour buy level for the yen with a counterparty and the buy level has just been broken. Bank salesperson to corporate Client: The market has fallen 200 ticks in the last 15 minutes, there have been significant sales across various names and prices have been showing abrupt jumps (gapping). The market continues to be offered, but the movement seems to be limited only to the yen. We do not know what the trigger is but there have been rumors on the internet about an earthquake, although it has not been confirmed through any of the main news channels.

Market Participants must communicate Market Color appropriately and without compromising Confidential Information. In this example, the salesperson shares information about recent market events, with the flow sufficiently aggregated and third-party information attributed to them clearly. (Principle 21)

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X Bank salesperson to a hedge fund: We have seen considerable demand for NZD/USD from XYZ (where “XYZ” is the code for a specific Client) this morning.

Market Participants must communicate Market Color appropriately, sharing information flow anonymously and in an aggregated manner. In the previous example, the information reveals the identity of a specific Client. In the following example, the communication is aggregated in terms of Client category, so that it cannot be identified.

✓ Bank salesperson to a hedge fund: We have seen considerable demand for NZD/USD from institutional investors this morning.

X Asset manager to a market-making bank: I heard you have been a significant buyer of GBP/USD. Is it the same British company again?

Market Participants must not request Confidential Information, including information about the operational activity of a specific Client. Market Color must be anonymous and aggregated to not reveal flows related to a specific Client. In the previous example, the asset manager has requested Confidential Information. In the following example, the administrator has requested Market Color in a general manner.

✓ Asset manager to a market-making bank: Could you give me some color on the 100-point increase in GBP/USD during the last hour?

X Market-maker to hedge fund: Yen liquidity has deteriorated. Just now it took me 15 ticks to cover my sale of 100 million USD/JPY to a Japanese automobile manufacturer.

Market Participants must report Market Color appropriately, sharing only the information flow in an anonymous and aggregated manner. In the previous example, the communication refers to a specific recent transaction and possibly reveals the identity of a specific Client. In the following acceptable example, the reference to the time of execution is broad and the type of Client is generalized.

✓ Market-Maker to hedge fund: Yen liquidity has deteriorated. Last week I could trade 100 million USD/JPY for only 3 ticks, but today it took me 15 ticks and double the time.

Market Participants must have clear guidelines on the forms and approved communication channels. (PRINCIPLE 23)

X A salesperson has several filled orders to confirm with a client but has left the office early. As they do not have access to a phone that records conversations, they save the texts of the confirmations made with their Client through their personal cell phone which does not have call recording functionality.

It is recommended that communication channels be recorded, particularly if they are used to execute transactions. In the previous example, the salesperson confirms transactions on an unrecorded line. In the following example, the salesperson strives to find a way for transactions to be confirmed through recorded media.

✓ A salesperson has several filled orders to confirm with the client but has left the office early. As they do not have access to a phone that records conversations, they contact their coworkers so that they contact the Client to confirm the transactions using recorded media.

RISK MANAGEMENT AND REGULATORY COMPLIANCE

Market Participants must have practices to limit, monitor, and control risks associated with their operational activity in the Foreign Exchange Market. (PRINCIPLE 27)

X A bank's Client has access to liquidity in the Foreign Exchange Market only through an Electronic Trading Platform offered by the bank's sales and operations area and has no other source of liquidity. The Client has not evaluated the risks of relying on a single source of liquidity. As a response to an unexpected market event, the bank adjusts the liquidity it provides through its Electronic Trading Platform, which severely impacts the Client's ability to manage its currency positions. As the Client has no contingency plan to access the market (including relationships with the bank's voice sales and operations area), the Client's ability to operate is limited.

Market Participants must have practices to limit, monitor, and control risks related to their operational activity in the Foreign Exchange Market. In particular, Market Participants must be aware of the risks associated with relying on a single source of liquidity and must adopt contingency plans when appropriate. In this example, the Client is unaware that their dependence on a single source of liquidity presents a risk to their business and has no contingency plans established, which seriously limits their ability to manage currency positions.

✓ A Market Participant has a significant Client franchise and maintains diverse channels to access liquidity, including two Prime Brokerage Services in foreign exchange and some bilateral contracts. For operational efficiency, the Market Participant routes most, but not all, of its flows through one of its Prime Brokerage Services but regularly routes a smaller, but representative, part of its portfolio to the other Prime Brokerage Service and to its bilateral relationships.

Market Participants must be aware of the risks associated with relying on a single source of liquidity and incorporate contingency plans when appropriate. In this example, the Market Participant has chosen to maintain and use multiple sources of liquidity as necessary according to the nature of its business.

X A small private investment fund copies the risk checks specified by its Prime Broker in order to remain within prudent limits, including its Net Open Position (NOP) and Daily Settlement Limits (DSL). The investment fund's algorithm has a programming virus that causes an out-of-control algorithm that causes money to be lost systematically. The fund discovers that despite having checked its limits, the fund incurs losses that threaten its survival.

Market Participants must have practices to limit, monitor, and control risks related to their foreign exchange operations. In this example, the investment fund has inadequate processes to identify and handle operational risks specific to its business. The limit verification mechanism failed to alert the fund about a drop in the value of its position. At the extreme, an algorithm that systematically loses, rather than makes money, can be entirely within its NOP and DSL limits because its position will decrease in value.

Market Participants must have Operational Continuity Plans. (PRINCIPLE 33)

X A Market Participant uses an alternate operation site in the same region and relies on personnel from the same area as its primary site. The Market Participant has not developed an appropriate Operational Continuity Plan for the nature, size, and complexity of its business. During a civil emergency, the Market Participant discovers that it cannot access its primary site nor its alternate operation site because both share the same telecommunications route. It also realizes that it cannot contact essential personnel for its operations.

Market Participants must have operational continuity plans appropriate to the nature, size, and complexity of their business and that can be implemented quickly and effectively. In this example, despite having a primary site and an alternate operation site, the Market Participant does not have a robust operational continuity plan to deal with disruption. In the following two examples, the Market Participant has elaborated an operational continuity plan that is, in each case, appropriate given the nature, size, and complexity of its operations.

✓ A Market Participant chooses a geographically distant alternate operation site whose infrastructure can be controlled by personnel at a distant location.

✓ A Market Participant decides that it will not maintain an information backup center, and that in the event that its information center is unavailable, it will reduce or eliminate its positions by calling one of the market-makers with whom it has a relationship and will operate by voice until its information center is available again.

Prime Brokerage Service Participants must strive to monitor and control trading permissions and credit provision in Real Time at all stages of transaction execution, consistent with the profile of their market activities in order to reduce the risk of all parties involved. (PRINCIPLE 41)

X A Client of a Prime Broker is provided with exposure limits for each of its operators in terms of its Prime Brokerage contract. The Client assumes that the operators are monitoring said limits and does not incorporate pre-trade verification procedures within its internal processes. The Prime Brokerage Client negotiates block transactions from a number of underlying accounts in a single ticket, providing the operator with the portion of the Prime Brokerage account after executing the transaction. The

Wednesday, October 11, 2017 OFFICIAL GAZETTE 43

The Client exceeds their exposure limit with the operators and only becomes aware of this fact through the operator at the time of providing the breakdown of their operation.

Prime Brokerage Service Clients must strive to monitor their applicable limits as specified in their Prime Brokerage Service contract. This is especially important when an Operator is not aware of the precise breakdown of accounts in a block operation. Clients must have pre-trade compliance-monitoring procedures so that only operations that fall within the established limits are requested from the operators.

✓ An operator realizes that a Client repeatedly exceeds their authorized limits due to routine controls established and informs the Client of this situation, with a warning.

Prime Brokerage Service Participants must strive to monitor and control the provision of credit in Real Time. While this example denotes a negative scenario (exceeding authorized limits), it is a positive example because the operator presents appropriate monitoring of their risk controls to detect the continuous violation of established limits and the adequate exchange of information between the affected parties.

CONFIRMATION AND SETTLEMENT

Market Participants must confirm foreign exchange operations as soon as possible and in a secure and efficient manner. (PRINCIPLE 46)

✓ A Client executes a USD/JPY spot operation on a bank's platform and is immediately provided with the operation confirmation through said platform. After reviewing the details of the operation received from the bank, the Client can immediately send a confirmation message for the operation.

Market Participants must confirm their foreign exchange operations as soon as possible and in a secure and efficient manner. In this example, the bank's automatic transmission and the initiation of the confirmation process allow the Client to send the corresponding confirmation message within a short period of time.

✓ A local Market Participant executes a foreign exchange operation with its parent company via telephone. Both the local entity and its parent company confirm the operation directly through a common, secure, and automated electronic platform.

Market Participants must confirm their operations as soon as possible and in a secure and efficient manner. In this example, both entities use a common, automated, and secure electronic platform to confirm their operation – an alternative to the automated confirmation systems used throughout the market.

Market Participants must review, confirm, and allocate block operations as soon as possible. (PRINCIPLE 47)

X The treasurer of a company has had a busy morning due to a large number of meetings. There are ten operations to be done, including some block operations with sub-allocations for the pension fund. The treasurer calls a counterparty by phone, completes the total of the ten operations with only sufficient credit, and waits to enter all operations into the system until after lunch.

The details of block operations must be reviewed and confirmed as soon as possible after their execution. In this example, the time lapse between execution and entry into the system does not comply with this principle and may cause delays in confirmations.

Annex 2 Glossary of Terms

Agent: Market Participant that executes orders on behalf of its Clients, in accordance with the mandate granted by the Client, and without assuming any market risk related to said orders.

Applicable Legislation: Laws, regulations, and other general provisions applicable to Market Participants and the Foreign Exchange Market in each jurisdiction where Market Participants conduct business.

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Interest (Ax): The interest that a Market Participant may have in executing an operation in a specific product or currency pair at a price that could be better than the prevailing rate in the market.

Client: Market Participant that requests operations and activities through or from other Market Participants that provide market-making services or other execution services in the Foreign Exchange Market. A Market Participant may act as a Client in some circumstances or as a market maker in others.

Compliance Risk: Risk of incurring legal or regulatory sanctions, material financial losses, or reputational loss as a result of a Market Participant failing to comply with laws, regulations, rules, industry standards, and codes of conduct applicable to their foreign exchange activities. Compliance includes observing appropriate standards of market conduct, managing conflicts of interest, fair treatment of clients, and adopting measures to prevent money laundering and terrorist financing.

Confidential Information: Information that must be treated as reserved, including that related to Foreign Exchange Market Operation Information and Information Designated as Confidential.

Corporate Treasury Center: Market Participant within a group or consortium composed mainly of non-financial companies, that conducts external operations (outside the group) as a Client (unless expressly stated that it acts in another capacity), both on its own behalf or on behalf of its parent companies, subsidiaries, branches, affiliates, or companies that make up the business group it represents.

Information Designated as Confidential: Reserved, confidential, exclusive-use, proprietary information, and any other information that Market Participants agree to designate a higher level of reservation, which at their discretion, may be formalized through the signing of written confidentiality agreements or any similar agreement.

Direct Payment: Transfer of funds to the account of the counterparty involved in the transaction to settle a foreign exchange operation.

Electronic Trading Platform: Any system that allows Market Participants to execute operations electronically in the Foreign Exchange Market.

Electronic Trading Activities: These activities may include operating, taking, or determining prices and providing and/or using trading algorithms, through an Electronic Trading Platform.

FX: Exchange rate.

Foreign Exchange Market: Wholesale foreign exchange operations market.

Foreign Exchange Market Operation Information: Can take various forms, including information related to past, present, or future operations or to the Market Participant's or its Clients' positions, as well as related information that is sensitive and received as part of its foreign exchange activities.

CMC (FXC): Foreign Exchange Market Committee.

Fixing Order: Order to operate at a specific reference exchange rate.

Give Up: Process by which operations are transferred to a Prime Brokerage Service by a counterparty designated by the Prime Broker to execute transactions with a Prime Brokerage Client.

Global Code of Conduct: Set of global principles of good practice in the Foreign Exchange Market.

Interdealer Broker (IDB): Financial intermediary that facilitates operations between broker-dealers, dealer banks, and other financial entities, instead of private individuals. This includes brokers that execute orders via voice, electronic media, and hybrid systems. Brokers with any degree of electronic execution will also be considered a subcategory of Electronic Trading Platforms.

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Mark Up: Differential in favor or charge that may be included in the final price of an operation as consideration to the Market Participant for various considerations, which may include risks assumed, costs incurred, and services provided to a particular Client.

Market Color: Shared viewpoint among Market Participants regarding the general state of the market and its trends.

Market Order: Request or communication from a counterparty to enter into a foreign exchange operation with a Market Participant to buy or sell a foreign exchange instrument at the level available in the market at that time.

Market Participant: See the definition contained in the preamble.

Personal Transactions: Operation by personnel for their own benefit or for their indirect benefit (for example, for the benefit of family members and close persons).

Pre-Hedging: Risk management associated with one or more Client orders in advance, designed to benefit them in relation to said orders and any other transaction resulting from them.

Prime Broker: Entity that grants credit intermediation to one or more parties in an operation, in accordance with the previously agreed terms and conditions governing the provision of said credit. This entity may also offer complementary or related services including operational and technological services.

Prime Brokerage Participant: Market Participant that acts as (i) Prime Broker, (ii) Client using the Prime Broker's services (Prime Broker Client), or (iii) Market Participant that acts as an operator (price maker) or execution intermediary (as an Agent or platform) between the Prime Brokerage Client and the Prime Broker.

Principal: Market Participant that acts on its own account.

Real Time: Time closest to when a process or event actually takes place.

Settlement Risk: Risk of loss of the total operation amount due to the counterparty's failure to settle. This can arise from the payment of the currency being sold but having a failure to receive payment for the currency being bought (This Settlement Risk is also known as "Herstatt Risk".)

SSI (Standing Settlement Instruction): Permanent settlement instruction.

Standards: Internal policies of a Market Participant, external codes (the Global Code of Conduct and any of its annexes published by regional Foreign Exchange Committees or in the jurisdictions where the Market Participant is constituted or operates), and other relevant guidelines (such as those established by international public sector organizations like the Bank for International Settlements and the Committee on Banking Supervision).

Stop Loss Type Order: Contingent order that activates a buy or sell order for a specific notional amount when a reference price reaches or exceeds a predetermined activation level. There are different variants of Stop Loss Type Orders, depending on the execution relationship between counterparties, the reference exchange rate, the trigger, and the nature of the activated order. A series of parameters are required to fully define a Stop Loss Type Order, such as the reference exchange rate, the order amount, the validity period, and the trigger.

Third-Party Payment: Transfer of funds to the account of an entity other than the counterparty involved in the transaction to settle a foreign exchange operation.

Voice Brokerage Service: An Interdealer Broker with responsibility for both counterparties, that negotiates foreign exchange operations via telephone, conversational systems, and/or hybrid systems.

ANNEX 3 Commitment Declaration

COMMITMENT DECLARATION TO THE GLOBAL CODE OF CONDUCT

[Name of the institution] has reviewed the content of the Global Code of Conduct ("Code") and recognizes that the Code represents a set of principles generally recognized as good practices in the wholesale foreign exchange market ("Foreign Exchange Market"). The Institution confirms that it acts as a Market Participant under the terms established by the Code and is committed to conducting its Activities in the Foreign Exchange Market ("Activities") in a manner consistent with the guiding principles of the Code. To this end, the Institution has adopted appropriate measures, based on the size and complexity of its Activities and the nature of its participation in the Foreign Exchange Market, to align its Activities with the principles of the Code.

[Name of the institution] Date: __ This is a sample. To download the commitment declaration, go to www.globalfxc.org

Explanatory Note on the Commitment Declaration to the Global Code of Conduct

The Global Code of Conduct ("Code") establishes a set of internationally recognized good practice principles in the wholesale foreign exchange market ("Foreign Exchange Market"). It is designed to promote a robust, fair, liquid, open, and sufficiently transparent market, in order to help build and maintain market confidence and at the same time, improve its functioning. The Commitment Declaration ("Declaration") provides Market Participants with a common basis through which they can demonstrate their recognition and commitment to adopting the good practices contained in the Code.

1. How should the Declaration be used and what are its benefits?

The Declaration has been prepared to support the objectives of the Code, such as increasing transparency, efficiency, and functioning of the Foreign Exchange Market. To this end, it provides a means through which (i) Market Participants can indicate their intention to adopt and adhere to the Code's good practices and (ii) Market Participants and others can more objectively evaluate the operational and compliance infrastructures of other Market Participants. Like the Code, the Declaration is voluntary, and Market Participants may choose to use it in different ways. For example, Market Participants may use the Declaration publicly, by publishing it on their website, or bilaterally, by giving it directly to other Market Participants, such as Clients or current or potential counterparties; Market Participants may also use it, where applicable, in relation to their membership in a regional foreign exchange market committee (CMC).

Among the main benefits of using the Declaration is the increased awareness of the Code and the promotion of its pro-competition objectives. The use and publication of the Declaration gives a positive signal to Clients, counterparties, and the market in general, of the Market Participant's commitment to act in accordance with good practices. The widespread use of the Declaration will increase the profile of the Code, providing the basis for a common understanding in the Foreign Exchange Market of what constitutes good practice in key areas and fostering broad participation of Market Participants to engage with and support the Code and its objectives.

2. What does the use of the Declaration represent?

It represents that a Market Participant: (i) has independently resolved to support the Code and recognize it as a series of good practice principles for the Foreign Exchange Market; (ii) is committed to conducting its activities in the Foreign Exchange Market in a manner consistent with the principles of the Code, and (iii) considers that it has taken the necessary measures, based on the size and complexity of its activities and the nature of its participation in the Foreign Exchange Market, to align its activities with the principles of the Code.

The adoption and implementation of the Code's guidelines and the extent to which it does so is the decision of each Market Participant, as is its decision to use the Commitment Declaration and the extent to which it does so.

3. Market Participants vary, for example, in relation to the size and nature of their activities in the Foreign Exchange Market. How is this taken into account?

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As mentioned in the Preamble of the Code, the Foreign Exchange Market comprises a diverse group of participants who intervene in the Foreign Exchange Market in different ways and through various foreign exchange products. Both the Code and the Declaration have been written and must be interpreted taking into account this diversity.

What this means in practice is that the measures each Market Participant takes to align its activities with the principles of the Code will reflect the size and complexity of its foreign exchange activities, as well as the nature of its participation in the Foreign Exchange Market and will take into account the Applicable Legislation. Finally, the decision on the measures that must be taken to support each Market Participant's Declaration and the manner in which it does so, will depend on the Market Participant in question, reflecting an appropriate self-assessment. For some Market Participants, the appropriate measures to take may include reviewing their practices in light of the Code, as well as establishing and maintaining policies, procedures, and controls designed reasonably to support their commitment. Additionally, Market Participants may evaluate the appropriate level of senior management supervision and establish dedicated training for personnel or incorporate it into existing training.

4. How should Market Participants take into account their corporate structure?

This is a matter to be determined by each Market Participant. The Declaration has been designed with the necessary flexibility to be carried out by a group of companies issuing a single and group declaration or for entities within a group to issue their own declarations individually.

5. What processes should a Market Participant consider implementing before using the Declaration?

Market Participants should consider what type of governance and approval processes will be appropriate to implement in relation to the use of the Declaration. These processes may vary among Market Participants, but it can be anticipated that the individuals or groups of individuals responsible for approving the use and publication of the Declaration by the Market Participant will have adequate supervision of their foreign exchange activities and the authority to make declarations such as those contained in the Declaration. The assessment each Market Participant makes regarding the appropriateness of its implementation policies and practices must be made independently of the assessment made by other Market Participants.

6. When should a Market Participant begin to use the Declaration?

As mentioned above, Market Participants may take different measures to support the use of the Declaration. The time they take to implement such measures may vary depending on the Market Participant's current practices and the size and nature of their business. Taking into account the feedback received from a wide range of Market Participants, it is anticipated that most Market Participants will require approximately 6 to 12 months to prepare to use the Declaration.

7. How often should a Market Participant review/renew its Declaration?

Since the nature of Market Participants' business may change over time, Market Participants using the Declaration should consider the procedure to follow to review that their activities are aligned with the principles of the Code. The procedures followed should reflect the size and complexity of the Market Participant's foreign exchange activities and the nature of its participation in the Foreign Exchange Market. While some Market Participants might consider establishing a regular schedule for periodic reviews, others may vary their approach depending on the evolution of their business.

Additionally, it is anticipated that the Code will be updated from time to time in order to reflect emerging issues, changes in the Foreign Exchange Market, and comments from Market Participants, among others. When updates to the Code are published, Market Participants must take into consideration, when renewing their Declaration, the nature of such updates, as well as the size and complexity of their foreign exchange activities and the nature of their participation in the Foreign Exchange Market.

ANNEX 2 COMMITMENT DECLARATION TO THE GLOBAL CODE OF CONDUCT

[ENTITY LETTERHEAD]

48 OFFICIAL GAZETTE Wednesday, October 11, 2017 Mexico City, on _____ of ___________________ of _______. BANK OF MEXICO NATIONAL OPERATIONS MANAGEMENT 5 de Mayo Avenue, No. 6 Centro Neighborhood, Postal Code 06000, Mexico City. Present: [Full Name of the Entity] has reviewed the content of the Global Code of Conduct (“Code”) and recognizes that the Code represents a set of principles generally recognized as best practices in the wholesale foreign exchange market. The Entity confirms that it acts as a market participant under the terms established by the Code and is committed to conducting its Foreign Exchange Operations in the foreign exchange market in a manner consistent with the guiding principles of the Code. To this end, the Entity has adopted appropriate measures, based on the size and complexity of its Foreign Exchange Operations and the nature of its involvement in the foreign exchange market, to align its Activities with the principles of the Code. Sincerely, (FULL NAME OF THE ENTITY) Copy for information: Mexican Foreign Exchange Market Committee. TRANSITORY PROVISIONS FIRST.- These Rules shall enter into force on the next banking business day following their publication, except as provided in the following transitory articles. SECOND.- The provisions of the 5th Rule of these Rules, regarding the obligation of Entities, prior to entering into Foreign Exchange Operations with the Bank of Mexico, to adhere to the Global Code of Conduct and present the report referred to in subsection A of the 3rd Rule of these Rules, shall enter into force on May 31, 2018. THIRD.- The provisions of the 6th Rule of these Rules, regarding the publication by the Bank of Mexico of those Entities that have determined not to adhere to the Global Code of Conduct, shall enter into force on May 31, 2018. Entities that have not presented the report referred to in the 3rd Rule of these Rules by the date referenced in this transitory article shall be identified in said publication as having determined not to adhere to the Global Code of Conduct, without prejudice to the sanctions applicable under the relevant provisions. Mexico City, October 6, 2017.- The General Director of Central Banking Operations, Jaime José Cortina Morfín.- Signature.- The General Legal Director, Luis Urrutia Corral.- Signature. For any inquiries regarding the content of this Circular, please contact the Management of Authorizations, Consultations and Legal Control, at phone numbers (55) 5237-2308, (55) 5237-2317 or (55) 5237-2000 Ext. 3200.