LONDON — Britain’s Financial Stability Board said on Tuesday that the window for determining currency benchmark rates should be widened, one of a series of proposals the board made to change currency markets in the wake of investigations into whether those markets were manipulated.
The proposals were the result of a review of currency markets by the board, a task force set up by the Group of 20 last year, to improve market practices and the way in which foreign exchange rates are calculated.
The review, which was announced in February, was independent of a series of investigations in Britain and elsewhere into potential manipulation of benchmark currency rates by traders at some of the world’s largest banks.
The Foreign Currency Fix
Regulators say that a group of London traders, known as the “cartel” and the “mafia,” illegally dipped into the $5.3-trillion-a-day currency trade.
By Channon Hodge, Aaron Byrd and David Gillen on Publish Date March 11, 2014. Photo by Aaron Byrd/The New York Times.As part of its proposals, the board recommended extending the periods used to determine the so-called fix — brief periods each day when currency trades are sampled to determine key exchange rates, such as that of the dollar to the pound sterling.
Currency fixes tend to focus on a one-minute window of trading, like around 4 p.m. British time for the pound against various leading currencies.
The board recommended that the period be extended to a five-minute window and that it be made even wider for less liquid currencies.
“The group’s view is that 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 board said in a 133-page report released on Tuesday.
The board first broached the idea of widening the window for determining benchmark exchange rates in a consultation paper in July.
It also recommended that banks adopt stricter policies on the sharing of information about clients’ orders or positions, and that they adopt internal controls to avoid potential conflicts of interest.
“Market makers should not pass on private information to clients or other counterparties that might enable those counterparties to anticipate the flows of other clients or counterparties, including around the fix,” the board said. “Only the information necessary for a transaction should be provided.”
The recommendations about overhauling benchmark rates can only be carried out if financial regulators or data providers decide to act on them.
The board, whose chairman is Mark J. Carney, the governor of the Bank of England, has been working to ensure the reliability of global benchmark exchange rates after a series of scandals involving the London interbank offered rate, or Libor, and other benchmark interest rates.
Banks have paid billions of dollars of fines in the last two years stemming from the manipulation of those interest rates.
Following the interest rate inquiries, regulators in Britain, the United States and other countries have begun investigations in the past year into whether traders also tried to manipulate benchmark currency rates.
The Swiss bank UBS said on Monday that it had begun discussions with several regulators on resolving those inquiries. Some of the world’s largest banks, including UBS, are facing investigations and have suspended or fired more than two dozen currency traders following their own internal inquiries.
“The terms proposed include findings that UBS failed to have adequate controls in relation to its foreign exchange business that were adequate to prevent misconduct, and would involve material monetary penalties,” the bank said Monday. “It is possible that other investigating authorities may seek to commence discussions of potential resolutions in the near future.”