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Banks, funds agree on wider window for FX fix

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08/20/2014 | 10:56am EST

WARSAW/LONDON (Reuters) - Banks and asset managers are ready to support an extension of the one-minute window used to set currency market benchmarks, documents showed on Wednesday, but most are concerned by the risks involved and divided on how much of an extension.

Responses from more than 30 asset managers, banks and industry associations published by global regulators on Wednesday included a wide range of opinions on the 15 proposals laid out by the Financial Stability Board last month.

There was broad agreement on the key point that they should pay more to banks for "fixing" services, in order to remove one of the key tensions in the existing system.

But on the issue of by how much to widen the window, firms' recommendations varied from an extra minute to extending the period to as much as half an hour.

One high-level banking source told Reuters separately that, in discussions in recent weeks, larger banks and clients had called for a much wider window but that many smaller players had been concerned about the scale of the risk this would generate, dividing opinion.

The London-based Investment Management Association, which represents UK asset managers who oversee around $10 trillion in investments, was one of those calling for a longer 20-30 minute window.

"A wider window may make it easier to accommodate a broad range of orders in large aggregate size, which is itself a desirable objective," regulatory affairs advisers Arjun Singh-Muchelle and Adrian Hood said in the response.

UTILITY

The $5.3 trillion-a-day foreign exchange market is the world's largest financial market and currently being investigated for collusion.

At the centre of the investigations is activity around the WM/Reuters currency fix at 4 pm local time in London, a 60-second window at which major exchange rates are set. These prices are used as reference rates for trillions of dollars of investment and trade globally.

In one response published by the FSB, DV Capital LLC's Gaurav Chakravorty attacked the industry as "deteriorating for real money participants" and "fleecing" some participants.

While regulators have shown little appetite for any wholesale shift of trading to some form of fully-regulated exchange-based system, the FSB did raise the prospect of creating a new independent utility to isolate and deal with all fixing orders.

A number of industry players have already questioned whether such a system would work, be cost-effective, or deal effectively with the currency risk around fixings, and the responses were largely sceptical to the idea.

"While a central utility would full maximise netting opportunities, we have concerns about the feasibility of creating a central, global utility," Deutsche Bank, the world's second bigger currency trader, said in its response.

The WM/Reuters fix is compiled using data from Thomson Reuters (>> Thomson Reuters Corporation) and other providers, which is calculated by WM, a unit of State Street Corp (>> State Street Corporation).

The FSB will present its final plans to reform the forex market to G20 leaders at a summit in November.

(Editing by Jeremy Gaunt)

By Patrick Graham and Jamie McGeever

Stocks treated in this article : State Street Corporation, Thomson Reuters Corporation
Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL 0.70% 24575.62 Delayed Quote.5.35%
STATE STREET CORPORATION 0.33% 70.82 Delayed Quote.12.29%
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