FX players reveal favoured regulatory fix

By:
Catherine Snowdon
Published on:

As the FX regulatory landscape gets revamped, data from the Euromoney FX Survey 2014 shed light on what the market wants when it comes to benchmark reform, including its views on sticking with the current WM Company and Thomson Reuters fix.

In this year’s Euromoney FX Survey, we asked respondents to think beyond the headlines of the market-shaking investigation into rate fixing. We asked:

"Which benchmark do you think should be used by the market instead of the WM/Reuters benchmark going forward?"

"Good question," said one respondent. But the answer? Not easy.

Rarely does a data set come in to the research team with such a varied and yet oddly aligned overall response: no one knows.

Some asked: "Why change it?" Others point to the different notable market benchmarks, such as Bloomberg’s BFIX, as a possible alternative. A decent proportion suggests central banks should be involved in the rate, but as we’ve learned in other markets, this can’t guarantee water-tight oversight. The European Central Bank (ECB) and Federal Reserve each get multiple nods as being the body to take on the task, with the ECB edging ahead in the votes.

There is a somewhat surprisingly strong voice behind leaving the fix as it is, although many conceded adjustments are necessary. 

Further reading

Reuters remains market 
choice for FX benchmark

A benchmark with a wider or random window of observation is a common suggestion, as is taking the average daily rate as a marker. A less popular, but nonetheless interesting, option is to link the benchmark to trades, perhaps as booked with retail customers.

One respondent goes so far as to question how a change of benchmark would assist the situation, perhaps suggesting the market will always find a way to manipulate the system.

The "I don’t know" and "unsure" camp is strong, and one respondent deems the question’s answer "beyond my knowledge" no less.

One questionnaire returned by an employee of an electronic FX trading platform said they "would like to see an independent study done on this, and quickly". But by whom? That is the question.

As one respondent lamented: "All benchmarks are subject to the same risks … It’s down to individual ethics." And, unfortunately, no amount of regulation can control that.

Click here for more detailed analysis of the results