The Financial Stability Board (FSB) released a Consultative Document on Foreign Exchange Benchmarks about potential market abuse on foreign exchange (FX) fixings. You can access the full report here. The report may be of particular interest to currency ETFs, multi-currency funds and portfolios, and corporate entities that seek to execute at the benchmark fix price.
Following the Libor scandal, a number of concerns were raised about the integrity of FX benchmarks, which stemmed from the incentives for potential market abuse linked to the structure of trading around the benchmark fixings. The FSB formed a group to analyze the FX market structure and incentives that may promote certain trading activity around the benchmark fixings.
The FSB recommends that the FX fixing window be widened from its current width of one minute, and it seeks feedback from market participants as to the appropriate width.
The FSB also seeks feedback from market participants as to whether there is a need for alternative benchmark calculations (such as a volume weighted or time weighted benchmark price) calculated over longer time periods of up to and including 24 hours.
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