LONDON: The one minute window for setting a widely used currency market benchmark should be extended to 5 minutes to make it harder to manipulate prices, the Group of Twenty’s (G20) regulatory task force said on Tuesday.

Several banks are being investigated by authorities in Britain, the United States and elsewhere for allegedly manipulating the $5 trillion a day currency market, prompting regulators to map out reforms of market operations.

“Extending the width of the window to 5 minutes strikes a balance between reducing incentives for manipulation while at the same time still ensuring the fix is fit for purpose by generating a replicable market price,” the Financal Stability Board (FSB) said in its final report on forex benchmarks.

The Global Financial Markets Association, which represents many international FX dealers, welcomed the recommendations.

“As the report highlights, there may well be challenges and costs in implementing the changes, but enhancing confidence in the market is crucial and the industry will adapt to embrace these recommendations,” said James Kemp, managing director of the GFMA’s FX division.

The probes into alleged misconduct in currency markets could result in some of the recommendations being turned into hard and fast regulation, the FSB said. Britain’s Investment Management Association, whose members use currency benchmarks, noted that the FSB report set out several steps.

“With rigorous policing by supervisors, they will be a step towards restoring confidence in FX benchmarks,” said Richard Metcalfe, IMA director of regulatory affairs.

No sharing

Activity around the WM/Reuters currency fix at 4 pm local time in London is at the heart of a global investigation into allegations that traders colluded and used client information improperly to influence pricing.

“Market-makers should not share information with each other about their trading positions beyond that necessary for a transaction,” the FSB said. “This covers both individual trades and their aggregate positions.”

The WM/Reuters fix relates to several exchange rates and is compiled using data from Thomson Reuters and other providers. They are calculated by WM, a unit of State Street Corp. Thomson Reuters is the parent company of Reuters News, which is not involved in the fixing process.

The FSB also recommended that WM should draw on a wider range of price feeds and transaction data during the fixing window.

Published in Dawn, October 1st, 2014