Refinitiv examines changes to major daily forex correction windows


London — Refinitiv is a daily foreign exchange (FX), including lengthening the trading window used to calculate it amid industry concerns about a global benchmark that was valued at trillions of dollars. Senior executives said they are considering a series of changes to the amendment. assets.

The 27-year-old WM / R benchmark, calculated by owner Refinitiv, has a five-minute trading window called “Modify” at 4 pm on weekdays when investors and banks flood the market. By buy and sell order.

WM / R is the most popular benchmark to date and is included in contracts such as those used by US fund managers who want to sell dollars at fixed exchange rates and buy euros to buy European stocks. increase.

One of the concerns of some asset managers moving billions of dollars within the window is that more agile hedge funds could find and trade off large deals and worsen investor exchange rates. Is to have.

The FX Group, organized by the European Central Bank, is concerned that concentrating end-of-month transactions on specific FX fixeds in April 2020 “is likely to create more volatility and pressure on market functions.” Said.

Abnormal price fluctuations at fixed times were reported in 2020, when the COVID-19 pandemic increased the volatility of the currency market, and more recently on July 27, when Sterling suddenly surged with a surge in trading volume.

“We are very focused on helping (benchmarks) evolve and adapt to changing market structures,” said Shirley Barrow, Global Head of Refinitiv Benchmarks and Indexes, extending the window. It was possible, but it has not determined what is “insufficient width”.

In addition to expanding the trading window, Mr. Barrow is more representative of the $ 6.6 trillion FX market per day by procuring trading data from more than two current platforms: Refinitiv Matching, EBS and Currenex. Said that it can be.

Concerns about corrections and whether investors are getting significant deals have been around for years, but resurfaced during the pandemic, urging Refinitiv to evaluate the option.

Refinitiv began collecting data on benchmark performance last year and began asking clients for feedback on potential changes, Barrow told Reuters.

This reveals that some users want to expand their windows to address concerns, such as computer-driven algorithm traders using slow-moving asset managers.

By widening the window, large buy or sell orders can have less impact on the market due to the potential for decentralized transactions, making it difficult for algorithms, the so-called Argos, to track investor order flows. Become.

However, for some asset managers, the current system is working well and there is always a “market impact” that others can find when placing large orders over a defined period of time. , Says that lengthening the window hardly solves the problem.

These managers say there are already steps the fund can take, such as not executing the entire order within a single window.

“Whether it’s a 20-minute window or a 5-minute window, it has an impact. Trading is costly,” said Mike Air, Global Head of Forex Trading at Vanguard, a leading asset manager. “There are some orders where the best result is to take more time and place the order over multiple days.”

Refinitiv will publish a white paper this month seeking further feedback on a list of potential improvements, Barrow said.

“Our focus is on optimizing the size of the window, rather than maintaining the price goal at a particular point in time,” she said.

Refinitiv is owned by the London Stock Exchange Group and is Reuters News’ largest customer. Thomson Reuters, the parent company of Reuters News, holds a minority stake in LSE.

Adjustments have become more important in recent years, probably because stock market sales are concentrated at the end of the trading day, and more currency trading is coalescing around it.

Some rivals are trying to take advantage of their concerns, and in April a benchmark called Siren was launched by Raidne, a company that provides analytics and trade surveillance.

It is calculated using the algorithm in a 20 minute window. Raidne said the user’s execution cost can be saved compared to the “traditional 4 pm fix”, which has a long window and its algorithm has a negative impact on the price that users get when processing bulk orders. Claims to be able to limit.

Unlike stocks, currencies are traded across dozens of platforms, so the market is very fragmented. Hedge funds and high-frequency traders with so-called algos are particularly active on platforms that feed on WM / R.

Barrow said WM / R provides a set of regulatory benchmarks that are modified at different times, and investors worried about using the 4 pm window need to “consider other times.” Added.

Tommy Wilkes