Associations Urge Regulatory Recognition of Additional FX Benchmarks

In a response to the European Commission’s consultation on restricted currencies in FX benchmarks, ISDA, and the Global FX Division (GFXD) have urged the Commission to exempt four currencies from the regulation in order that the markets can continue to use them.

Under the EU’s Benchmark Regulation (BMR), a restricted currency needs to meet certain criteria to be seen as a significant benchmark and allowed for use. Mainly these are that there is no suitable EU alternative benchmark and that the currency pair(s) in question are used on a frequent, systematic and regular basis by end users to hedge their currency exposures.

ISDA and GFXD’s response highlights how the Korean won, Indian rupee and Taiwan new dollar all exceed the significant benchmark threshold based on traded volume data provided by EU supervised entities, and that the Philippine peso “is very close to” that threshold.

On the USD/INR rate, managed by Financial Benchmarks India and regulated by the local central bank, the associations observe that 74% of the notional value of trades (itself over $50 billion over a six-month period), was with end users and banks hedging their local currency exposure. On USD/KRW, the benchmark is managed by Seoul Money Brokerage, but is not regulated, while 71% of trades are with end users and banks.

USD/TWD fixings are managed by Taipei Forex and are not regulated, while 72% of volume is by hedgers, elsewhere USD/PHP volumes observed by the associations were under the $50 billion threshold, but did hit $44.2 billion and $47 billion at the end of August and November 2024 respectively, when the data was collated. As is the case with the KRW and TWD fixings, the local benchmark is not regulated, and is managed by the Bankers Association of the Phillippines, with 80% of volume for hedging purposes by end users and banks.

The associations argue that because offshore and onshore prices may not match, there is no EU alternative, which would be either LSEG’s WMR Fix or Bloomberg’s BFix. As part of the data analysis exercise undertaken for the consultation response, they explain that other non-central bank administered benchmarks that are not or do not expect to be authorised for use in the EU were considered but the data indicated their use in the EU is not significant. “The joint response has received formal support from the European Association of Corporate Treasurers and the Deutsches Aktieninstitut,” the associations conclude.