2014年-FSB全球金融稳定委员会_Final_Report_on_Foreign_Exchange_Benchmarks_133页_1mb

Foreign Exchange Benchmarks Final Report Summary

Core Content

This report addresses concerns about the integrity of foreign exchange (FX) benchmarks, particularly the WM/Reuters (WMR) 4pm London fix and the ECB's reference rates. The FSB Plenary established a working group to examine FX market structure and incentives that may lead to manipulation around benchmark fixings. The group's analysis focused on the construction, usage, and potential risks associated with FX benchmarks, and proposed a series of recommendations for reform.

Main Issues and Observations

• Market Structure and Incentives: FX benchmarks are used to value, transfer, and rebalance multi-currency portfolios. This creates an incentive for market participants, especially asset managers, to ensure that their FX trades are executed at the same mid-market price as the benchmark fix, reducing tracking error. However, this concentration of orders around the fixing time can lead to increased volatility and potential manipulation.

• Trading Behavior: Dealers often accept client orders before the fixing window and execute them as principal, bearing the price risk. This practice may lead to dealers attempting to influence the fix price to generate profit, even if only temporarily.

• Market Data: The WMR fixes are based on actual trades and bid/offer quotes from electronic platforms. For less liquid currencies, the methodology is adjusted to ensure adequate market coverage. The ECB's reference rates are published for 32 currencies and are based on a daily consultation process with central banks.

• Volatility and Transparency: While increased trading volumes around fix times are observed, the report suggests that this does not significantly impact overall market volatility. Transparency around fix prices is valued by many market participants, even though it may not always equate to best execution.

Key Recommendations

The group proposes the following reforms:

1. Benchmark Calculation Methodology

• Widen Fixing Window: The fixing window should be expanded from one minute to at least five minutes for major currencies, and longer for less liquid currencies.
• Broaden Data Sources: WM should incorporate data from a wider range of sources to improve market coverage and ensure the benchmarks reflect a broader set of market conditions.
• Consultation with Users: WM should consult a named user group to review and refine the calculation methodology.

2. IOSCO Review and Compliance

• Endorse IOSCO Recommendations: The group supports the IOSCO review findings and recommendations for improving FX benchmark integrity.
• Enhance Compliance: Market participants should demonstrate stronger compliance with codes of conduct and internal guidelines to address conflicts of interest and ensure ethical trading practices.

3. Central Bank Reference Rates

• Guidance from IOSCO: Central banks should take note of the IOSCO principles when setting reference rates, especially for transactional purposes.

4. Market Infrastructure

• Independent Execution Facilities: The group recommends the development of industry-led initiatives to create independent netting and execution facilities for fix orders.

5. Market Participant Behavior

• Restrict Information Sharing: Market-makers should not share information about their trading positions, either individually or in aggregate, with other market participants or clients.
• Transparency in Pricing: Fixing transactions should be priced transparently, using either a bid-offer spread or a documented fee structure.
• Internal Controls: Banks should establish and enforce internal systems and controls to manage conflicts of interest and ensure ethical behavior.

Conclusion

The group believes that the proposed recommendations can be accepted and implemented by market participants to improve the integrity and structure of the FX market. However, ongoing regulatory investigations into alleged misconduct suggest that further regulatory changes may be necessary to ensure appropriate behaviors and enforce the recommendations.

Key Information

• WM/Reuters Fix: Dominates the FX market, used in multi-currency indices and by a wide range of participants.
• ECB Reference Rates: Used by European corporates and the non-deliverable forwards market.
• Fixing Window: Currently one minute, but the group recommends expansion to reduce manipulation incentives.
• Data Sources: WMR uses Thomson Reuters Matching and EBS for trade currencies, and indicative quotes for non-trade currencies.
• Volatility: Increased trading volumes around fix times do not significantly impact market volatility.
• Compliance: Market participants should demonstrate stronger adherence to conduct codes and internal guidelines.
• Implementation: The recommendations aim to improve transparency, reduce manipulation risks, and ensure fair execution of fix orders.

Appendices

• Appendix 1: Alternative methods for calculating FX benchmark rates.
• Appendix 2: Members of the FSB FX Benchmark Group.
• Appendix 3: Review of IOSCO's principles for financial benchmarks by WM in respect of the WMR 4pm fix.