FX benchmark hopes market participants will spot the difference
Siren promises reductions in FX execution costs compared with the WM/Refinitiv 4pm fix. The challenge now is to persuade banks, asset managers and large funds to execute trades on the benchmark.
FX market impact has long been flagged as a concern when trading to the London 4pm fix for the WM/Refinitiv (WMR) benchmark. A research paper published by Australian investment manager QIC in March noted that the adverse costs of large volumes of trades moving in the same direction outweighed any claimed liquidity benefits.
If the market for GBP/USD is trading at $1.4000 and the majority of fix participants are buyers of GBP, the market will most likely fix substantially above that level, perhaps $1.4050. While the benchmark price has been achieved, the cost to investors of that achievement is substantially higher than it would have been if they had simply traded in the market.
Siren has been specifically constructed to act as a rate that can be dealt upon
Enter Siren, a benchmark that has been developed over the last three years by Raidne, a quantitative surveillance and best execution analytics firm. What makes it different, say its creators, is the calculation methodology.
“Siren has been specifically constructed to act as a rate that can be dealt upon,” says Raidne co-founder Jamie Walton.