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REGULATION

Global watchdog unveils plan to stop currency manipulation

PUBLISHED : Wednesday, 16 July, 2014, 1:15am
UPDATED : Wednesday, 16 July, 2014, 1:15am

Global regulators have published details of their plans to overhaul foreign-exchange benchmarks in response to allegations that traders colluded to manipulate rates in the US$5.3 trillion-a-day currency market.

The Financial Stability Board (FSB) proposed changes to the way the WM/Reuters rates are calculated, including extending the length of the one-minute windows on which the benchmark is based, and making firms set up systems to address potential conflicts of interest with their clients. The Basel-based FSB set an August 12 deadline for comments on the plan.

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 such as WM/Reuters rates, which are used by money managers and pension funds to determine what they pay for foreign currency. Over 20 traders have been fired or suspended across the industry.

It is [each central bank’s] responsibility … to set internal procedures
FINANCIAL STABILITY BOARD

The FSB, led by Mark Carney, governor of the Bank of England, is also analysing whether there is a need for "alternative benchmark calculations" prepared over longer time periods of as much as 24 hours, according to a statement posted on the group's website yesterday.

The FSB 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 benchmarks in the wake of attempts to manipulate the London interbank offered rate. It said in February that it would extend this work into currency-market benchmarks.

The group stopped short of proposing guidelines for central banks that publish reference rates, saying "it is the responsibility of each to set internal procedures".

WM/Reuters rates are published hourly for 160 currencies and half-hourly for the 21 most-traded. The benchmarks are based on trades in a minute-long period starting 30 seconds before the beginning of each half-hour. The most widely used is the so-called 4pm London fix.

Traders used chat rooms to share information about their clients' positions with counterparts at other banks in the minutes before 4pm, and agreed to push trades through together during the fix to maximise their impact on the benchmark.

The Bank of England said in February that it was reviewing allegations that its officials condoned the use of chat rooms to share client information going into the fix.

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