What Happened at Month End Fix?

The debate around whether the FX market needs a longer window at the crucial WMR 4pm London Fix often comes down to market impact. Whilst the sell side seems unconcerned about changing the fix, it will generally follow whatever instructions are given by customers, the buy side seems divided.

There are those who believe the Fix works fine and that market impact is irrelevant because the underlying assets are also being valued at the fixing rate, and there are others that see signalling risk and significant market impact and who look to other mechanisms.

The academic world has also failed to convince that a longer window is preferable, but now perhaps there are more data to play with. The Full FX reported last month on the first trades being executed using the Siren Fix, and following that is seeking to bring more data to the debate by publishing brief details of every month end Fix using Siren and the WMR Fix. This is the first report and as such how the data is reported may evolve over the coming months, but hopefully it provides data and, importantly, food for thought, for practitioners to better understand and analyse, as per a recommendation from the Global FX Committee, whether their execution style is indeed fit for purpose.

The April month-end Fix saw general dollar buying, which actually came as something of a surprise to some analysts who had been predicting dollar selling. This may explain why there was a steady move up in the dollar into the fixing window, from 30 minutes before, EUR/USD and Cable dropped around 30 points, and USD/JPY rose 25 – any speculative accounts seeking to take advantage of the anticipated selling would probably have realised they were wrong once the pre-hedging cut in.

To offer a comparison, the following table provides the Fixing rate delivered by Siren as well as a calculated WMR 4pm Fix – this data is delivered by Raidne, which owns the Siren Fix. The Full FX has independently verified the WMR data and, apart from Cable, USD/NOK and USD/SEK, the differences are fractional, namely the Raidne calculated WMR Fixes are to four or five decimal places while the actual WM fix is calculated to three or four, depending upon the currency pair. The official WMR Cable fix was, according to market sources 0.00012 lower than stated here, while the NOK and SEK were roughly 10 and seven points higher than calculated meaning if a market participant was a buyer of dollars at the Fix, the dollars per million saving would have been slightly higher.

*According to Raidne calculation using NewChange FX data

** Savings are in dollars per million by percentage of correlation to the Fix flow. Blue cells signify a projected saving using Siren, Red cells a saving using WMR

To provide more context, the table also presents projected dollars per million savings across a portfolio of different pairs using a correlation with the Fix calculation, depending upon how much flow was in the direction of the market, or “with the wind”.

Each month a chart and analysis will be provided by Raidne for The Full FX looking at a major cross rate – this month it is EUR/GBP. The projected saving cited here is at 100% correlation.

The month end fix did see a drop in the cross in the run up to the window, and, perhaps more worryingly for those who concern themselves with signalling risk, there was a reversion after the window closed. This suggests speculative money, while it may have been misguided in expecting broad dollar buying, was on the money for EUR/GBP