The Financial Stability Board (FSB) has made a number of proposals to tighten up international foreign exchange markets and reduce the opportunities for market manipulation.
The FSB, a coordinating body for international central banks and regulators, suggested extending the “fixing window” in which currency prices are set beyond one minute, in order to make unusual price movements more visible.
In its report, the FSB—which is co-chaired by Guy Debelle, assistant governor for financial markets at the Reserve Bank of Australia, and Paul Fisher, deputy head of the UK’s Prudential Regulation Authority—outlined its concerns.
“At a minimum, [the current] market structure creates optics of dealers ‘trading ahead’ of the fix even where the activity is essentially under instruction from clients,” the FSB said.
“Worse, it can create an opportunity and an incentive for dealers to try to influence the exchange rate—allegedly including by collusion or otherwise inappropriate sharing of information—to try to ensure that the market price at the fix generates a rate which ensures a profit from the fix trading.”
The FSB is acting independently of national regulators, which are separately investigating accusations that some currency traders colluded in attempts to rig exchange rates, in echoes of the Libor scandal that resulted in multi-million dollar fines for Barclays, UBS, Citigroup, JP Morgan, and Royal Bank of Scotland.
Every hour 160 currencies are valued by WM/Reuters using the average prices during a 60-second window leading up to the hour. The process is also repeated on the half-hour for 21 major currencies including sterling and dollars. Traders are said to have pushed through trades during these windows in a bid to secure favourable prices. So far no action has been taken against any individuals or companies.
The investigations were triggered by a Bloomberg report which claimed that five traders had told of the regular practice of “front-running” the rate-setting windows.
The FSB has invited emailed responses to its consultation—available here—until August 12.