The European Central Bank took its first formal step to discourage market manipulation around its euro FX reference rates on Monday, saying it would delay their publication by an extra 90 minutes from next July. The bank declined to say whether it had seen any suspicious trading around its daily setting of the more than 30 currency rates, and said it was reacting to changes recommended by regulators reforming global FX benchmarks.
Market rigging scandals that have come to light since the financial crisis ranging from FX markets and interest rates to commodities have badly damaged the banking industry, led to billions in fines and exposed serious flaws in regulation. The ECB said that from July 1, 2016 it would publish the rates at 4 pm Central European Time, compared to 2.30 pm currently. There would be no changes to the methodology it uses to calculate the reference rates, based on a fixing at 2.15 pm, it said.
The central bank's hope is that the publication delay will help prevent rigging by taking advantage of the fact some types of currency trades have to be completed within half an hour of the deal being made. "The new publication regime aims to reinforce the distinction between exchange rate fixings used as benchmarks for transaction purposes and the ECB reference rates that are published for information purposes only," the bank said, adding that it would be watching the behaviour of traders "closely".
"The ECB ... expects transaction activity related to the ECB reference rates to decline substantially. If it does not, the ECB will consider further delaying the publication of the reference rates, potentially until the next business day." The global Financial Stability Board committee, which is working on reforming fixings, says part of the problem has been the concentration caused by asset managers doing most of their currency deals at the fixing rather than other times of day. They have recommended fund managers seek other ways to do daily currency deals. "It is essential to safeguard a high level of integrity and to underline that they (the ECB rates) are intended to be used solely as a reference for information rather than when making transactions," ECB Executive Board member Benoit Coeure said.