NEW YORK - Traders of lesser-developed-country debt are on the verge of approving a code of conduct for a market that is high on regulators' priority list.
The code, which seeks to forestall embarrassing scandals such as insider trading and money laundering, is expected to be ratified at a board meeting of the Emerging Markets Traders Association on Wednesday.
It could be in effect by the end of the month, said association executive director Thomas Winslade.
"It reflects more or less the way people trade now," Mr. Winslade said. He noted that with almost all large commercial banks and Wall Street brokerages engaged in the high-stakes, $600 billion market for Third World debt, normal securities laws are in place and largely observed.
Abuse Not Widespread
But the need for a code has been underscored by intense scrutiny from the Federal Reserve Board and other authorities, and in at least one instance when an alleged scandal in the market made headlines.
"I don't think there ever was a widespread pattern of abuse," Mr. Winslade said. "The bad things you hear are one-off instances of alleged misconduct by a trader."
Mr. Winslade said the impetus to draw up a code came shortly after a speech to the traders association in late 1991 by New York Federal Reserve Bank President E. Gerald Corrigan.
He said the Fed was watching the market carefully and urged members to come up with ways to safeguard proper trading practices.
Since then, sources in several banks say, the Fed has been through their books with a fine-tooth comb. Emerging Markets Traders Association officials sent drafts of the code of conduct to the Fed for comment.
After arresting two former Manufacturers Hanover Trust Co. traders last month for alleged misconduct in the trading of Colombian foreign debt in 1990, Manhattan District Attorney Robert Morgenthau's office said there was an ongoing probe into emerging markets debt trading.
Mr. Morgenthau said those charges may have been a "spin-off" of his investigation into the scandal surrounding the failed Bank of Credit and Commerce International.
However, the Colombia debt trading case marked the only time so far that a prosecution has been brought in the United States against traders of LDC debt.
Focus on Generalities
Mr. Winslade said the code is voluntary and general, serving as a guideline rather than a rulebook.
For instance, the draft points out that "the mere appearance" of insider trading may be "extremely damaging to the perceived integrity of the marketplace and to the reputation of the participants."
The code makes no attempt to spell out what is or is not permissible, but Mr. Winslade said it makes the point that it is left to banks to keep their houses in order.
The code seeks safeguards against money laundering, conflicts of interest, and lax bookkeeping.
