A new research paper that looks at trading around the WM Reuters benchmark fix between 2012 and 2017 argues that while the mechanism has been made more robust and less open to manipulation, the shift to a five minute window has made actually achieving the benchmark harder for some market participants.
The paper uses what the authors term “a unique dataset that allows us to identify the actions of individual traders” that provide new insights into how trading decisions affect the properties of the fix benchmark, and how the presence of the fix affects trading patterns.
I absolutely get the value in data – more importantly, I absolutely get the potential for data in our markets. However (and who didn't know that was coming?) it should not become the only driver of analysis. This week's research paper on the 4pm Benchmark Fix does a great job of empirically analysing the changes and their impact on the mechanism, but, to my mind, fails to take into account how the changes corrected an existing imbalance that needed redressing for the overall wellbeing of the market.
In this week’s podcast, Galen Stops lights the blue touchpaper and steps back to watch the fireworks by asking Colin Lambert about not only the Benchmark Fix, more specifically the research paper published this week, but last look as well following the news that a regional regulator is investigating the practice. Just to add to the mix, he also gets him going on another Lambert favourite, tracking error.
They also discuss the FX Global Code and fintechs and ask, ‘should they be adhering and signing up to the Code?’ and Lambert shares some reader feedback on this week’s opinion piece on FX options brokerage.