According to a report from the Wall Street Journal "Investors are turning their back on the use of currencies benchmarks amid a global probe into possible manipulation of foreign-exchange markets, attendees at an industry committee said.
At the meeting of financial-markets association ACI in London on Wednesday, banks and investors said the volume of transactions traded at so-called "fixes" had fallen off sharply, according to several people who attended the event. The benchmark that is measured from trades executed around 4 p.m. in London each weekday, which has been at the center of a global probe that began in the U.K. last April, is particularly falling out of favor.
"Asset managers raised concerns that volumes traded at the 4 p.m. WM/Reuters fix are dropping like a stone," said one participant. "This is a problem for the industry because assets are calculated against the benchmark."
The regular ACI meeting comes after a growing list of banks have moved to suspendor fire foreing-exchange traders in connection with the investigation conducted by various international authorities.
Before the launch of formal probes, around 1% to 2% of the $2 trillion-a-day global "spot" currencies flows were executed at this fix, market participants said. While a relatively small slice, this has an outsize market impact given the short period at which trades are completed. The recent perceived drop-off in volumes is based on anecdotal evidence rather than on measured flows, another meeting attendee said.
"The banks are seeing less business," this person said. "It's a realization that attempting to put through at a given moment in time a very substantial order is not necessarily the most efficient way of doing it. If you had to buy $100 million worth of Korean equities, you would not do it at a split second. So why do it in FX? There are so many better ways to do it," this person said. Instead, the person said, some investors are choosing to pump flows through computer programs—algorithms—that slice up large trades and seek to complete them with minimal market impact without human intervention
At various industry forums of late, market participants have discussed possible alternatives to the way foreign-exchange benchmarks are calculated .
One option would be to lengthening the time period over which the benchmark is calculated to two minutes from one, to deter very short-term trading patterns known as "jamming" and to soothe the volatility around fix times.
