Currency Benchmarks Face Review by Financial Stability Board

Feb 14, 2014 11:20 am ET

(Updates with WM statement in 11th paragraph.)

Feb. 14 (Bloomberg) -- The Financial Stability Board, a group of global regulators, started a review of foreign-exchange benchmarks following allegations traders colluded to rig rates in the $5.3 trillion-a-day market.

The FSB created a group to review the process of setting foreign-exchange benchmarks, led by Guy Debelle, assistant governor for financial markets at the Reserve Bank of Australia, and Paul Fisher, executive director for markets at the Bank of England. It will present its findings later this year.

The committee will analyze how the benchmarks are used and “the functioning of the FX market,” the Basel, Switzerland- based group said in an e-mailed statement today.

At least a dozen regulators on three continents are investigating whether traders in the world’s largest financial market colluded with counterparts at other firms to manipulate benchmarks including the WM/Reuters rates. More than 20 traders have been fired or suspended across the industry.

The FSB, led by Mark Carney, governor of the Bank of England, consists of regulators and central bankers from around the world that seek to agree on global financial rules. The board, which reports to the Group of 20 nations, set up a task force last year to try to repair or replace tarnished financial benchmarks in the wake of attempts to manipulate the London interbank offered rate, or Libor.

‘The Fix’

The WM/Reuters rates for 160 currencies, used as a benchmark by companies and investors around the world, are determined by trades executed in a minute-long period called “the fix,” starting 30 seconds before 4 p.m. in London.

Traders used chat rooms to share information about their clients’ positions with counterparts at other banks in the minutes before 4 p.m., and agreed to push trades through together during the fix to maximize their impact on the benchmark, Bloomberg News reported in June.

The Bank of England said this week it is reviewing allegations that its officials condoned the use of chat-rooms to share client information going into the fix.

The WM/Reuters rates determine what many pension funds and money managers pay for their foreign exchange and are used by index providers such as FTSE Group and MSCI Inc. to calculate daily valuations of indexes that span multiple currencies. Even small movements could affect the value of what Morningstar Inc. estimates is $3.6 trillion in funds, including pension and savings accounts, that track global indexes.

The data is collected and distributed by World Markets Co., a unit of Boston-based State Street Corp., and Thomson Reuters Corp. Bloomberg LP competes with Thomson Reuters in providing news and information, as well as currency-trading systems and pricing data. Bloomberg LP also distributes the WM/Reuters rates on Bloomberg terminals.

“The WM Company supports efforts by the industry to determine best practice and we welcome discussions on these issues,” State Street said in an e-mailed statement.

--Editors: Lindsay Fortado, Keith Campbell