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Fix Volumes in Decline as Manipulation Probe Intensifies

Trading volumes during the 4pm WM/Reuters Fix are dropping as global investigations into alleged FX manipulation, believed to be focusing on practices surrounding the use of the benchmark, continue to gather pace.

Participants at a meeting of the ACI’s foreign-exchange committee (ACIFXC) this week were reported by the Wall Street Journal to be discussing the fall, with one delegate stating that volumes are “dropping like a stone”.

David Woolcock, global head of sales and business development at Eurobase and chair of the ACI Committee for Professionalism, tells Profit & Loss the reports are not unexpected.

“I keep hearing that volumes in the Fix have declined and I think that this is absolutely due to people reassessing what the Fix is suitable for and what it isn’t suitable for,” he adds.

“At the end of the day, if as an asset or fund manager you have a very large amount of foreign exchange to transact, trying to transact that through a 60 second window fix benchmark isn’t always appropriate.”

Woolcock says that due to the nature of the risk to the bank, which has that position on its books, it will have to operate very rapidly in the market to defease that risk.

As well as accepting the order to execute it, effectively the bank has also written an option and you have to hedge that position, he adds.

“The most effective way to do that is to start buying or selling, dependant on which way round the order is, in the market as soon as they have accepted the order,” says Woolcock.

“It is very important that doesn’t get confused with front running, because the two are very different.”
The WM/Reuters Fix is calculated by a unit of State Street, and is understood to be a central focus of the global investigations into possible manipulation by global regulators and agencies.

Its reach has extended in recent weeks, with a number of the leading banks having suspended certain FX spot traders while the investigations continue.

“The WM/Reuters benchmark service is committed to reliability and robust operational standards," a State Street statement says. 

“WM continually reviews recommended methodology and policies to ensure that industry best practices are considered.”

Profit & Loss

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