Integral Development has reacted to the ongoing uncertainty in the FX industry surrounding the 4PM fix by releasing its own product, Integral FX Benchmark.
The new products offers what Integral claims is a “first of its kind” set of second-by-second benchmark rates for major currency pairs, and is the result of joint research work with Stanford University as well as feedback from buy-side FX market participants. The information will be made available free of charge.
“A major problem with rate ‘fixings’ is that ‘fixings’ are based on a snapshot in time. Fixings, a fixed concept, are then applied to a flow concept of non-liquidating investment assets as a means to price those assets; as if all those assets could be liquidated at that fixed price,” says Eric Busay, portfolio manager, global fixed income and currency at CalPERS. “Availability of once-a-second benchmark rates will help alleviate that problem and make the currency market more efficient and less subject to distortion.”
Michael Melvin, managing director and senior research advisor at BlackRock, adds, “Implementing a transaction cost model in FX has always been challenging due to a lack of intra-daily benchmark rates that will allow modeling and also allow one to correctly assess implementation shortfall going forward. Even if one had a historical data set to allow model estimation, the challenge has been to have a proper continuous exchange rate series that supports trade evaluation on an ongoing basis.”
Integral and Stanford University have collaborated to develop underlying methodologies for the calculation of once-a-second benchmark rates based on data from Integral’s liquidity aggregation and OTC FX trading network. Stanford’s Kay Giesecke, associate professor of management science and engineering says, “The Integral FX Benchmark is a perfect example of how Stanford collaborates with the industry to conduct research that helps revolutionize the use of Big Data for the benefit of market participants. Access to accurate information is a key component of market efficiency that drives growth and innovation.”
Integral FX Benchmark Rates will be available for download each day after the close of trading in New York, initially for the following currency pairs: AUD/USD, EUR/USD, GBP/USD, NZD/USD, USD/CAD, USD/CHF and USD/JPY. The service will commence on January 15, 2014.