Regulators push for widening of forex fix time (Financial Times 15 July 2014, by Daniel Schäfer and Sam Fleming in London)
Global regulators have proposed to centralise foreign exchange trading at a crucial daily fix on a global platform in a move that would undercut banks’ role in the currency market. The Financial Stability Board said in a consultation paper that it was interested in the creation of a global “utility” to match fixing orders placed by market participants. Such a centralised matching platform would essentially strip banks from their roles as market-makers for large forex orders with the aim of reducing the scope for trading ahead of such client orders.
“This is fairly radical,” said Sassan Danesh, managing partner at Etrading Software, a consultancy group. “A maximalist implementation would leave very little room for the dealers.” The idea is part of 15 preliminary reform proposals for the scandal-tainted forex market that were brought forward by the umbrella regulatory group on Tuesday. It started to scrutinise the London-dominated global forex market in February after a sprawling investigation by at least 15 regulators and prosecutors into benchmark-rigging allegations piled on pressure to reform a largely unregulated industry.
The FSB said that the way the forex market was working had created “an opportunity and an incentive for dealers to try to influence the exchange rate – allegedly by collusion or otherwise by inappropriate sharing of information”. Forex experts said a central order matching platform could be established by a non-for profit market infrastructure provider such as the Depository Trust & Clearing Corporation. They said it would further undermine the role of “voice” traders who transact over the phone. Voice spot traders have been at the centre of widespread allegations of market rigging and their jobs are already threatened both by the regulatory probes and a push towards automation.
The FSB also proposed to widen the one-minute time period in which the critical WM/Reuters London fix is set in order to make it less prone to manipulation. Such a widening of the time window has been widely debated in the industry, including at an annual meeting of central bankers and senior foreign exchange bankers in Sydney in April. WM/Reuters itself is already considering potential changes to its methodology including an extension of the window, people familiar with the situation have said.
The FSB also suggested to assess the need for alternative benchmark calculations and for receiving transaction data and price feeds from a broader range of sources. Its working group, led by Paul Fisher of the Bank of England and Guy Debelle of the Reserve Bank of Australia, plans to make final reform suggestions at a meeting of the G20 largest global economies in Brisbane in November. The FSB’s review adds to an existing mandate given to it by the G20 largest global economies last year to devise a reform of the Libor interbank lending rates.