• BC-2 BC-2 Code of Conduct for Bank Dealers and Foreign Exchange and Money Brokers in the Foreign Currency and Deposit Markets

    • BC-2.1 BC-2.1 Introduction

      • BC-2.1.1

        The Code of Conduct, which is prepared in cooperation with the Bankers' Society of Bahrain and foreign exchange brokers, provides rules in respect of certain kinds of practice which experience has shown may cause difficulty and may jeopardise the good standing of the Bahrain market. Management of banks and money brokers are responsible for ensuring that their institutions are in full compliance with the Code.

        October 07

      • BC-2.1.2

        Every broker and dealer shall at all times comply with the criteria in respect to market practice, integrity and conduct. Failure to comply with such criteria will be regarded as a serious offence by the CBB, which reserves the right to investigate any complaints brought to its attention. All participants should adhere to the spirit as well as to the letter of the Code.

        October 07

    • BC-2.2 BC-2.2 Market Terminology and Definitions

      • BC-2.2.1

        The use of generally accepted precise terminology should reduce misunderstandings and frustration, and to this end Appendix BC-5 sets out, without claiming to be exhaustive, accepted market terminology and definitions.

        October 07

      • BC-2.2.2

        For the purpose of this Chapter, the following definitions apply:

        (a) 'Broker' means a money and foreign exchange broker who is authorised by the CBB to operate in Bahrain;
        (b) 'Principal' means a party undertaking a transaction through a broker; and
        (c) 'Bank' means any institution holding a banking license.
        Amended: April 2011
        October 07

    • BC-2.3 BC-2.3 Confidentiality and Market Practice

      • BC-2.3.1

        Confidentiality is vital for the preservation of a reputable and efficient market. Accordingly, the exchange of confidential information in respect of third parties is forbidden.

        October 07

      • BC-2.3.2

        The rules which follow are not intended to define exhaustively the obligations of dealers and brokers but set down specific ways in which confidentiality should be safeguarded and operations should be conducted:

        (a) Use of phrases and terms likely to identify the name of the principal should be avoided at all times;
        (b) In foreign exchange transactions brokers should not disclose the name of the principal until the deal is being closed.
        A broker asking for a specific support price should be prepared to qualify the principal in terms of geographical location, by country or by region when the broker genuinely believes it will enable business to be concluded satisfactorily to the benefit of both broker and principal;
        (c) In deposit transactions, brokers should not disclose the name of the borrower until the broker is satisfied that the potential lender seriously intends to do business. Once a lender has asked for the identity of the borrower ('Who pays?'), the lender is committed to do business at the rate quoted with an acceptable name, until the lending bank takes the broker 'off' or puts himself under reference. In the event of the first disclosed name being unacceptable to the lender, the lender will be prepared to check other acceptable names provided that such names are shown to the lender by the broker within a reasonable amount of time, which should be stipulated if necessary;
        (d) In the deposit market, banks should whenever possible give brokers prior indication of those categories of principals and of any centres and areas with which they would be unwilling to do business, in order that the smooth operation of markets be facilitated and frustration be minimized. Lenders should indicate the amounts they are prepared to place with particular categories of borrower. Brokers should classify bids with an indication of the type and quality of names they are in a position to pass;
        (e) Practices whereby banks reject a succession of names in order to assess the market and brokers offer banks deals which have no chance of being concluded, merely in order to establish their interest, are totally unacceptable;
        (f) A principal is urged whenever possible to specify to a broker the rate, the amount, the currency, and the period of his requirements. The principal shall be willing to deal in a marketable amount with acceptable names and shall remain bound so to deal at the quoted rate unless either:
        (i) The broker is informed otherwise at the time of acceptance; or
        (ii) A time limit was placed (for example, 'Firm for one minute only').
        A broker who quotes a firm rate without qualification shall be prepared to deal at the rate, in a marketable amount. A broker, if quoting only the basis of one or two names, shall qualify his quotation, e.g., 'one small offeror – only two names paying'. The broker should indicate whether prices are firm or simply for guidance and, if requested by the principal, should be willing to indicate the amount involved. Further he should confirm with banks at reasonable intervals that their interest is still firm.
        It is the responsibility of the principal to ensure the broker is made aware of any circumstances which materially affect the validity of the order placed with the broker.
        (g) A principal, by selecting to 'put a broker on', is deemed to have a serious intention of completing business, and should allow the broker sufficient time to quote the principal's interest to a potential counterparty with a view to doing business. In quantifying a 'sufficient time' factors such as the currency, market conditions and communication systems employed, should be taken into account;
        (h) A broker is held responsible for advising a principal on every occasion that his deposit rates are being checked by a potential counterparty. This action should help minimise the occasional difficulties that arise when a principal 'takes a broker off' simultaneously to having his prices checked.
        Whenever possible and subject to market conditions, a bank in the deposit market should, before he 'takes a broker off' either a single order or several orders, check whether the broker is already committed to deal on his behalf;
        (i) 'Under reference' orders placed by banks with brokers without having first being placed as 'firm', are to be discouraged. Firm orders which are later qualified by a request to 'put me under reference' indicate a principal's weakening desire to conclude business with that broker. 'Under reference' orders should not be left with a broker for more than a few minutes. A principal must ensure that the broker has the opportunity frequently to check the validity of an 'under reference' order;
        (j) No person may visit the dealing room of any broker or any bank except with the consent of a Manager or Director of that institution. A broker shall not in any circumstances permit any visitors from a bank to deal for his bank in the dealing room of that broker;
        (k) Management of banks should issue clear directions to staff on the monitoring, control and recording of 'after hours' dealing from premises other than bank dealing rooms. All deals of this kind must be properly authorised and confirmed;
        (l) A bank dealer shall not apply unfair pressure upon a broker to pass information which it would be improper for the broker to pass. Unfair pressure would for example include a statement made in any form that a failure to co-operate would lead to reduction in the business given by the principal or by other principals to the broker;
        (m) A principal should not place an order with a broker solely with the intention of finding out the name of a counterparty, who can be contacted directly with a view to concluding further deals;
        (n) Management of banks and brokers should lay down clear directions to staff on the extent to which dealing in foreign exchange or deposits for personal accounts is permitted. Any such dealing must be strictly controlled;
        (o) Care should be taken over the positioning of 2-way loudspeakers in dealing rooms; and
        (p) Brokers and dealers should inform each other if conversations are being recorded. The use of such equipment is encouraged as a sensible means of enabling any subsequent disputes and differences to be settled.
        Amended: April 2011
        October 07

    • BC-2.4 BC-2.4 Passing of Details

      • BC-2.4.1

        The passing and recording of details form an essential part of the transaction and the possibility of errors and misunderstanding is increased by delay and by the passing of details in batches. Brokers should pass details verbally, and principals should be prepared to receive them, normally within a few minutes after deals have been concluded.

        October 07

      • BC-2.4.2

        When arranging and passing details on forward contracts in foreign exchange, banks and brokers must ensure that the rate applied to the spot end of the transaction bears a close relationship to the spot rate at the time the deal was concluded.

        October 07

    • BC-2.5 BC-2.5 Confirmations

      • BC-2.5.1

        Written confirmation by a broker is the final check on the details of the transaction. The handling of confirmations must take account of the desire of brokers to have a realistic time-limit placed on their liability for differences. There is an obligation on recipients to check such confirmations. Initial confirmations should be sent out by telex without delay, and at the latest by close of business on the same working day. They should be followed up by written confirmation, normally hand-delivered and receipted before close of business on the following working day.

        October 07

      • BC-2.5.2

        Banks must check all confirmations carefully upon receipt so that discrepancies shall be quickly revealed and differences minimised. Principals shall also make enquiries of brokers about particular confirmations which have not been received within an appropriate time (as above) or about any changes in contract terms.

        October 07

      • BC-2.5.3

        In the case of deals where a bank pays against telex confirmation, the broker remains liable for differences until receipt of written confirmation is provided by the bank.

        October 07

    • BC-2.6 BC-2.6 Differences and Disputes

      • BC-2.6.1

        The majority of differences payable by brokers arise from errors occurring in payment or repayment instructions. They also arise from a broker, having in good faith indicated a firm rate, being unable to substantiate his quotation.

        October 07

      • BC-2.6.2

        Any differences deemed payable by a broker to a bank (or by a bank to a broker) should be settled as soon as possible. The parties should provide each other with documents, setting out the exact details of and circumstances surrounding the deal.

        October 07

      • BC-2.6.3

        It is acknowledged that differences are sometimes paid by 'points'. The management of broking firms should always ensure that this practice is strictly controlled and monitored.

        October 07

      • BC-2.6.4

        All differences settled by direct payment should be advised in writing by the broker to the Director of Reserve Management, CBB, (copied to the Bank) indicating the amount paid and the other party's name. The CBB reserves the right to ask for further information at its discretion.

        October 07

    • BC-2.7 BC-2.7 Conduct

      • BC-2.7.1

        The CBB will regard any breaches of the rules stated below regarding gifts, favours, betting and entertainment unacceptable.

        October 07

      • Gifts and Favours

        • BC-2.7.2

          No broker, including management, employees and other persons acting on their behalf, shall offer or give inducements to dealing room personnel of a bank. No gifts or favours whatsoever shall be so given unless the broker is satisfied that the person responsible for dealing operations in the bank concerned has been informed of the nature of the gift or favour.

          October 07

        • BC-2.7.3

          Employees of banks shall not solicit inducements from brokers, nor shall they receive unsolicited gifts or favours from brokers without informing the person responsible for dealing operations in the bank concerned of the nature of such gifts or favours.

          October 07

      • Bets

        • BC-2.7.4

          The making or arranging of bets between brokers and bank dealers is totally unacceptable.

          October 07

      • Entertaining

        • BC-2.7.5

          It shall be the responsibility of management in both banks and brokers to ensure that entertainment offered in the course of business does not exceed reasonable limits and does not infringe standards of propriety and decency.

          October 07

    • BC-2.8 BC-2.8 Responsibility

      • BC-2.8.1

        Brokers shall be responsible for ensuring that:

        (a) Their principals understand fully the limitations of the brokers' responsibilities for business and market conducted;
        (b) All their principals understand that they are required to conform, where appropriate, to the Code of Conduct;
        (c) Their staff carrying out transactions on behalf of principals are adequately trained both in the practices of the market-place and in the firm's responsibilities to principals; and
        (d) The CBB is notified of any changes in broking staff, in accordance with CBB requirements.
        October 07

      • BC-2.8.2

        Bankers shall be responsible for ensuring that:

        (a) Their dealing staff are adequately trained and supervised in the practices of the market (the requirement of this Code of Conduct should be fully understood by all staff involved in foreign exchange and currency deposit operations);
        (b) [This Subparagraph was deleted in April 2022];
        (c) Their staff understand that the ultimate responsibility for assessing the creditworthiness of a borrower or lender lies with the bank and not the broker;
        (d) Brokerage is normally payable at the end of the month in which the money passes, or otherwise by special arrangement; and
        (e) There is no pressure on brokers to reduce charges below the approved minimum rates.
        Amended: April 2022
        October 07

    • BC-2.9 BC-2.9 Market Regulations – Foreign Exchange

      • Currencies

        • BC-2.9.1

          A broker will, in response to an enquiry from any bank, make known the currencies which it elects to quote and to make a service in.

          October 07

        • BC-2.9.2

          Each broker shall provide, on request by a bank taking a service, general market information on all currencies handled (whether for the time being active or not) by that broker.

          October 07

      • Brokerage

        • BC-2.9.3

          Brokers shall comply with the minimum scales of brokerage charges (see Section BC-4.6) agreed in consultation with the Bankers' Society Council from time to time, or laid down by the CBB.
          In cases where there is no established minimum scale of brokerage charges, no deals shall be transacted until a rate has been agreed. Rates of brokerage in these cases should be agreed in advance, and only by Directors or senior managers on each side, and in no event by the dealers themselves.

          October 07

        • BC-2.9.4

          Put-through deals may be net of brokerage.

          October 07

        • BC-2.9.5

          Brokerage should be expressed in US dollars.

          October 07

    • BC-2.10 BC-2.10 Market Regulations – Currency Deposits

      • Brokerage

        • BC-2.10.1

          Brokers shall comply with the minimum scales of brokerage charges (see Section BC-4.6) agreed in consultation with the Bankers' Society Council from time to time, or laid down by the CBB. In cases where there is no established minimum scale of brokerage charges, no deals shall be transacted until a rate has been agreed. Rates of brokerage in these cases should be agreed in advance, and only by Directors or senior managers on each side, and in no event by the dealers themselves.

          October 07

        • BC-2.10.2

          Calculation of brokerage on all currency deposits shall be worked out on a 360-day year, or a 365-day year, according to normally accepted market practice. For example, Sterling and Kuwaiti Dinars are on a 365-day year basis, and US dollars and Saudi Riyals are on a 360-day year basis.

          October 07

      • Brokers' confirmations and statements should express brokerage in US dollars.

        • BC-2.10.3

          In a forward-forward deposit (e.g. one month against six months) the brokerage to be charged shall be on the actual intervening period (i.e. in the above example - five months).

          October 07

        • BC-2.10.4

          Put-through deals may be net of brokerage.

          October 07

    • BC-2.11 BC-2.11 Market Discipline

      • BC-2.11.1

        As part of its responsibility for supervising the conduct of brokers and dealers in the foreign exchange and currency markets, the CBB may, at its discretion:

        (a) Investigate any complains concerning the conduct of brokers and dealers;
        (b) Investigate possible breaches of this Code by brokers and banks; and/or
        (c) Take such further action as it considers appropriate, in the light of all the relevant facts.
        Amended: January 2011
        October 07

    • BC-2.12 BC-2.12 Adjustment of Value Dates in Case of Unexpected Banking Closing Dates

      • BC-2.12.1

        Spot transactions and outrights:

        (a) Original agreed upon value date for identical currency sold and purchased: extension of value date to next possible value date for both currencies; and
        (b) Original agreed upon value date for non-identical currency sold and purchased (for instance, Friday for US Dollars and Saturday for Gulf Currencies): as unexpected banking closing days for non-Middle Eastern currencies are unlikely - value of non-Gulf currencies unchanged and value of Gulf currency on the next working day, adjusting spot or outright rate taking into account interest rate difference between the two currencies.
        For pure outrights it would be advisable to adopt same system as for swaps; however, implied swap difference is not visible or identical for both parties.
        •   It can be assumed that, if the above rule would cause substantial losses for one party, dealers will re-negotiate a new rate, on a case-by case basis; if no agreement can be reached, the CBB - as final arbitrator - will fix the interest rates, prevailing at that time, which will be used to calculate the points difference, with which the outright rate will be adjusted.

        It is possible that payment instructions for counter-currency are already sent out and cannot be cancelled; in that case the paying party should be entitled to the proceeds of the unexpected use of funds by the receiving party.

        Amended: April 2011
        October 07

      • BC-2.12.2

        Deposits:

        (a) Maturing on unexpected closing day(s): Extending deposit to next possible value date; interest to be calculated in the extended period at original agreed upon interest rate;
        (b) Starting on unexpected closing day(s) and maturing after unexpected closing day(s): Starting date will be extended to next possible value date without altering maturing date; interest to be calculated on the shortened period at the originally agreed upon interest rate; and
        (c) Starting on unexpected closing day(s) and maturing before or on next possible value date: Cancellation of deal:
        1. If payment instructions are already sent out by lender and can only be executed on next possible value date, and cannot be cancelled, borrower ensures repayment will be done on the same next possible value date. If in that case borrower cannot repay because of deadline of receiving instructions by correspondent on same next possible value day, parties negotiate a new deal starting at value date of payment by lender and maturing according to new deal.
        2. If payment instructions are already sent out by lender for capital and by borrower for capital and interest both payments will be executed at same next possible value date, lender should refund to borrower unearned interest.
        Amended: April 2011
        October 07

      • BC-2.12.3

        Swaps:

        (a) Maturing on unexpected closing day(s): Extending swap to next possible value date for both currencies, adjusting swap difference according to formula - swap difference divided by original number of days and multiplied by new number of days;
        (b) Starting on unexpected closing day(s) and maturing after unexpected closing day(s): Starting date for both currencies would be extended to next possible value date for both currencies without altering maturing date, adjusting swap difference according to Formula under Paragraph BC-2.12.3(a); and
        (c) Starting on unexpected closing day(s) and maturing before or on next possible value date: Deals are cancelled.

        If starting or maturing date of original swap under Paragraph BC-2.12.1 or Paragraph BC-2.12.2 is substantially different, per currency swap difference has to be recalculated in mutual agreement between the dealers;

        •   It is possible that payment instructions for counter currency are already sent out and cannot be cancelled - in that case paying party should be entitled to the proceeds of the unexpected use of funds by the receiving party;
        •   It is possible that payment instructions for Gulf currencies are already sent out and cannot be cancelled - in these cases rules according to Paragraph BC-2.12.2(c)-1 and Paragraph BC-2.12.2(c)-2 should be applied.
        Amended: April 2011
        Amended: January 2011
        October 07