Articles tagged by benchmarks
Implementation of a reformed Euro Interbank Offered Rate (Euribor) is expected to happen in the first half of 2017, according to the Financial Stability Board (FSB).
The FSB – which groups G20 financial authorities - has published an update on the process ...
The US Federal
Reserve Board has banned former Barclays and UBS FX trader, Matthew Gardiner,
from working in the banking industry for his manipulation of FX pricing
board says that from January 2008 until at least January 2013 that Gardiner “...
Alongside last week’s publication of an update
on the Fair and Effective Markets Review (FEMR), the UK’s Financial Conduct
Authority (FCA) has separately published a progress report on its own FX
The programme, which was launched
Financial regulations, particularly for
benchmarks, are likely to be materially aligned in the UK and rest of Europe by
the time Brexit is completed, however obtaining “equivalence” status for the UK
might not be quite as straightforward, a number of ...
The US Federal Reserve Board has announced that it will seek a $1.2 million fine and a permanent ban on employment in the banking industry for Chris Ashton, a former FX trader at Barclays.
Seven banks have had a number of claims against them for FX market manipulation dismissed in an ongoing US civil litigation court case.
The Bank of Tokyo-Mitsubishi UFJ, Credit Suisse, Deutsche Bank, Morgan Stanley, RBC Capital Markets, Société Générale, and Standard Chartered Bank (collectively, the Non-Settling Defendants or NSDs) are the seven banks named in the court documents released yesterday.
The NSDs are accused of conspiring to fix FX prices around the 4pm WMR benchmark, but moved to dismiss the claims against them.
In recent years the sell side has justifiably been criticised for its behaviour in the FX market. But should regulators and market participants be taking a closer look at how the buy side operates in this market? Galen Stops reports.
The FX industry has been rocked by a number of scandals in recent years and in many cases the implications of these scandals is only now coming home to roost.
Two of the largest custodian banks in the world, BNY Mellon and State Street, have agreed $714 million and $530 million settlements, respectively, related to allegations they systematically set disadvantageous rates for their customers in contrast to their claims to be achieving best execution for them.
Petra Wikstrom, global head of Execution and Alpha solutions at BNP Paribas, talks to Profit & Loss about why FX TCA benefits from “a pragmatic engineering approach”.
Profit & Loss: When it comes to producing meaningful TCA, what are the big data challenges facing market participants?
Petra Wikstrom: Over the last five years we’ve seen a constant uptick in the electronification of FX, but the number of venues offering FX liquidity has increased far beyond that, which means that similar volumes are now offered across more venues.
Alex Dunegan, founder and CEO of Lumint, talks to Profit & Loss deputy editor, Galen Stops, about the challenges facing the buy side around selecting and evaluating benchmarks.
The WMR benchmark has come under severe scrutiny since the allegations that banks colluded to manipulate it, leading to changes in the way that the benchmark is calculated and questions from buy side firms about whether they should be using it at all.
Dunegan claims that this is a “critical” question, and provides his take on the answer.
In a new whitepaper issued today, Thomson Reuters claims that regulators are requiring firms that contribute to financial benchmarks to face increased scrutiny of their record-keeping and information governance policies.
The paper, “Information Governance Reform for Benchmark Submitters”, focuses on the global momentum for regulatory change following the Libor and FX benchmark scandals and examines the challenges submitters now face.
It notes that, because most benchmarks are global and therefore cross jurisdictions, individual benchmarks may have multiple sources of regional regulations. As a result, firms are now required to ensure compliance with an expanded scope of guidelines and relevant jurisdictions.
Bloomberg Tradebook has released a new cross-asset tool designed to enable firms to trade one security relative to a set benchmark.
In a release issued today, Bloomberg Tradebook claims that this Relative Benchmark Trading (RBT) algorithm will help traders using its PAIR (Pair) platform generate alpha, reduce the costs of trading and better manage risk.
It does this, the firm says, by enabling firms to leverage Bloomberg’s data to help them capture gains from the dynamic relative pricing of securities by tracking the performance of other instruments that drive the price of that stock.
The Australian Securities and Investment Commission (ASIC) and Reserve Bank of Australia (RBA) have jointly welcomed the publication of new guidelines for the setting of the local interest rate benchmark, the Bank Bill Swap Rate (BBSW).
A major concern over recent years has been the low trading volumes during the rate set window, the time of day that BBSW is measured. In response, the BBSW methodology is being strengthened to enable the benchmark to be calculated directly from a wider set of market transactions.
Reform of interest rate benchmark setting processes continues but concerns remain about the lack of transactions during some of the rate setting windows, the Financial Stability Board says.
The FSB has published its latest report setting out progress on the implementation of its 2014 recommendations to reform major interest rate benchmarks such as key interbank offered rates. Those recommendations included measures to strengthen benchmarks and other potential reference rates based on interbank markets, as well as developing alternative nearly risk-free benchmark rates.
The Bank of England has formally announced that its reforms to the Sonia interest rate benchmark will take effect on Monday 23 April 2018.
The reforms, which were announced earlier this year and see Sonia replace Libor as the interest rate benchmark for UK markets, will result in the Bank of England taking on the end-to-end administration, including the calculation and publication of Sonia, broadening the coverage to included overnight unsecured transactions, and the use of a VWAP methodology to calculate the rate.
The UK’s Financial Conduct Authority (FCA) has fined former Royal Bank of Scotland (RBS) interest rate derivatives trader, Neil Danziger, £250,000 and banned him from performing any function in relation to any regulated financial activity.
Danziger was primarily a forward FX trader on the yen book at the bank but he also was RBS’s substitute submitter for the yen London Interbank Offered Rate (Libor) rate set, the activities investigated by the FCA.
The FCA says it has found that Danziger was “knowingly concerned in RBS’s failure to observe proper standards of market conduct.
New Change FX (NCFX) has been approved by the UK’s Financial Conduct Authority (FCA) as the first benchmark administrator for live FX spot markets under EU Benchmark Regulation 2016/1011.
NCFX produces live, consolidated, registered spot benchmarks for FX market customers.
“The introduction of the NCFX benchmarks means that live FX execution can now be benchmarked against a recognised rate. FX deals can therefore be executed and benchmarked as they arise, rather than waiting for fixing windows. This gives freedom and flexibility to investors and their executing banks. NCFX benchmark rates are calculated 20 times a second so market users can act in the market whenever they choose, rather than being constrained by benchmarks that are calculated infrequently,” says NCFX in a release issued today.
The Bank of England says it has implemented its reforms to the Sonia Interest rate benchmark.
The bank says its aim in reforming Sonia – the Sterling Overnight Index Average – is to strengthen a benchmark which is considered critical for the sterling financial markets. Previously, the benchmark was based on a market for brokered deposits, which the Old Lady says, has limited transaction volumes.
The new benchmark now captures a broader scope of overnight unsecured deposits, by including bilaterally negotiated transactions alongside brokered transactions.
Philippe Bonnefoy, founder of Eleuthera Capital, explains why the FX industry suffers due to a lack of an effective industry benchmark.
Bonnefoy discusses why the 4pm Fix can be beneficial, but points out that it also suffers from potential gaming. He then adds that benchmarking remains a huge issue for investors trying to work out whether they should consider FX as an asset class or not.
“With an equity benchmark, you know what the index is doing, for fixed income you know what the composite bond or the bond benchmark in 10-year Treasury is. For FX, is it cash? Is it a three-month yield? Is it overnight pricing? How do I say that you created value for me in trading FX other than just saying whether you were positive or negative?,” asks Bonnefoy.
The New York Department of Financial Services (DFS) has fined Deutsche Bank $205 million as part of a consent order for violations of New York banking law.
As investigation by the DFS determined that from 2007 to 2013 Deutsche Bank repeatedly “engaged in improper, unsafe, and unsound conduct in its foreign exchange business due to its failures to implement effective controls”.
In addition, the DFS says that for certain time periods parts of Deutsche Bank’s electronic trading platforms had the potential to improperly disadvantage customers and improperly affect markets, when certain applications did not perform as intended.
The Bank of England’s Working Group on Sterling Risk Free Reference Rates, which is tasked with leading the transition away from Libor to term Sonia rates, has launched a consultation process to help drive the evolution, which is intended to be complete by the end of 2021.
The work is part of a global effort to shift interest rate benchmarks away from the scandal-ridden mechanisms such as Libor, Euribor and Tibor, has been launched at a time when attention on the reform process is ratcheting up.
In this week’s In the FICC of It podcast, Galen Stops breaks ranks to say he found one of Colin Lambert’s columns interesting, while the latter makes an appeal for expert knowledge on risk-free rates – if only so he doesn't have to blag another podcast feature.
They also discuss the latest unfair dismissal outcome in the UK in which yet another FX dealer was found to have been wrongly sacked, as well as the potential implications for the fintech industry from a legal case in the US. In a busy podcast they also dispel some myths about AI – while at the same time making a big statement (is there any other kind?) on what will make AI trading successful; and they pick out their early selections for must-not-miss sessions from Forex Network Chicago in September.
Benchmark fixes have been immersed in controversy for the past five years, but anecdotal evidence sees no shift in asset manager attitudes to them. Colin Lambert asks, will these firms ever desert the Fix?
If there has been one lightning rod for controversy in what has been a pretty turbulent period for the foreign exchange industry it has been benchmark fixes. Banks have been fined, traders and managers have been dismissed, and some are facing legal sanctions, including jail, thanks to various activities all of which were centred on the WM and European Central Bank fixes.
Intercapital Capital Markets (Intercapital), a NEX Group subsidiary formerly known as ICAP Capital Markets (ICAP), has agreed a $50 million settlement with the US Commodity Futures Trading Commission (CFTC) in relation to allegations that some of its brokers aided and abetted attempts by several of its bank clients to manipulate the ISDAFIX benchmark.
A CFTC order issued today finds that over more than five years, beginning in at least January 2007 and continuing through December 2012, ICAP’s swaps brokers were regularly enlisted by traders at bank clients to assist in attempting to manipulate the US dollar International Swaps and Derivatives Association Fix (USD ISDAFIX) for the benefit of their bank clients’ derivatives positions, including positions involving cash-settled options on interest rate swaps.
Bank of America (BoA) has become the latest firm to settle with the Commodity Futures Trading Commission (CFTC) over the attempted manipulation of the ISDAFIX benchmark, agreeing to pay a $30 million civil monetary penalty.
The CFTC Order finds that, beginning in January 2007 and continuing through December 2012, BoA made false reports and attempted to manipulate the US dollar International Swaps and Derivatives Association Fix (USD ISDAFIX) in order to benefit its derivatives positions, including positions involving cash-settled options on interest rate swaps and interest rate swap futures.
James McDonald, CFTC Director of Enforcement, comments: “This marks the ninth CFTC enforcement action involving manipulative conduct in connection with the USD ISDAFIX benchmark. As this case shows, the Commission will continue to work vigilantly to ensure the integrity of critical financial benchmarks and hold all wrongdoers accountable, no matter how widespread the misconduct.”
The problems around OTC market benchmarks are well-established, but it's not just limited to these markets - there are suspicions and claims about collusion and attempted manipulation in listed markets as well. The latest lawsuit against FX banks has a very interesting paragraph in it which highlights the Plaintiffs' belief that the Fix is open to manipulation, which begs the question, "Why use it?"
So is it time for a rational and genuine discussion about the use of these benchmarks? I think it is.