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Last updated: January 28, 2014 7:04 pm
Royal Bank of Scotland is to stop providing dozens of currency benchmarks, as regulatory rate-rigging probes raise doubts about the integrity of daily price fixings in the global foreign exchange market.
In a memo to clients, the bank said that it would limit its offering of foreign exchange benchmarks to a handful of price fixings, and that it would wind down its internal benchmark, called RBS Fix.
The move comes as regulators in the US and across Europe investigate allegations of possible manipulation and collusion in the vast foreign exchange market, where $5.3tn changes hands daily.
The probes have prompted calls for reform of the mostly unregulated spot foreign exchange market, and raised questions about the process of setting prices by taking snapshots of trading at specific times of day.
Some investors are already starting to move away from trading at those rate-setting times.
“In cases where trades are not benchmark sensitive, we suggest trading throughout the day as opposed to any one point in time,” Klaus Paesler, head of currency in Europe at Russell Investments said.
At the same time, the uncertainty triggered by the regulatory investigations has attracted new entrants, which are trying to establish alternative benchmarks.
Calpers, the pension fund, and asset managers BlackRock and Russell have been testing a forex benchmark in which the data are compiled on a second-by-second basis. It was launched two weeks ago by Integral Development Corp, a US forex trading technology company, and Stanford University.
The use of fixes “makes life neat and tidy” for asset managers but could impose large hidden costs on fund investors if they are not getting the best price, said Andrew Woolmar, head of New Change FX, which offers rival benchmarking services.
RBS said in its memo that it would continue to execute orders using the crucial WM/Reuters fix at 4pm London time. The daily rate is used by mutual funds around the world but it has been at the centre of allegations of price manipulation.
The UK bank said that it would also cease to publish its own rates for reference purposes from the end of next month.
RBS launched its own fix in 2003 as its own benchmarking service, for spot and forward prices. Other banks offer similar internal benchmarks: Citigroup, among the biggest, offers 17 fixings over the trading day.
However, the RBS product did not attract many clients, people close to the bank said, adding that the decision to close it was due to cost cutting in the bank’s benchmarking unit.
More than half a dozen banks, including RBS, have fired, suspended or placed on leave a total of more than 17 currency traders in London, New York and elsewhere amid internal probes launched last year.
Additional reporting by Philip Stafford
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