What Happened at the Month-End Fix?

The October month-end provided the second lowest potential savings for using a longer calculation window for the London 4pm Fix, since The Full FX started publishing data nearly four years ago, however, again, there appears to be a significant disparity between the two five-minute calculations, two of which could have resulted in very rare instances of the market impact being lower in the five, rather than the 20-minute window.

The potential saving using the 20-minute Siren FX calculation over the WM five-minute methodology was $177 per million, second only to July’s savings of $156 per million. Within this, all currency pairs saw potential savings below the long-term 43-month average, and all but AUD/USD were below their 2024 average (NZD was very close to the year’s average).

USD/SEK and USD/CHF saw the lowest potential savings – the latter the lowest since October 2022 at $46 per million – but according to data provided to The Full FX by market sources, if the actual WM rate is used, as opposed to that provided from higher frequency New Change FX data used by Siren, for only the second and third time in almost four years, there would have been a saving using WM.

Sources confirm that the WM USD/CHF 4pm Fix was 0.8647, lower than the NCFX-data derived 0.86475, but notably also below the Siren FX Fix, albeit fractionally at 0.86471. In The same is the case in USD/SEK, where sources confirm WM fixed at 10.70005, putting it blow the $10.70061 Siren FX rate, and likely to result in a small benefit from the shorter window. For clarity, just as it is the case for the broader analysis, a potential saving or cost benefits the majority of users of the WM Fix in terms of their trading direction.

This is not a new phenomenon in this analysis, as has been noted before, the WM methodology of taking one mark per second in a millisecond trading environment has caused problems for traders trying to match the benchmark. At the October month-end, it was a mixed bag, however there will be some concern that the two biggest pairs both had significant differences in five-minute calculation, EUR/USD by 0.00007bp and USD/JPY by 0.012bp.

To provide more context, the table below 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”. The Full FX verifies monthly that the WM rates used here are a reasonable reflection of that fixing.

*According to Siren FX 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

The highest savings at the end of October came in USD/JPY – the fourth time that has been the case in 2024 at month-ends – and while at $532 per million it is very close on its 2024 average of $534.70 per million, it is below the 43-month average of $607 per million.

Source: Siren FX

Price action was mixed in the run up to 4pm, with the market continuing a downtrend from earlier before bouncing strongly at the start of the five-minute window. This suggests that pre-hedging, or hedging ahead of the Fix, may have been limited, with the pair rising almost 20 points until the second half of the window, when there was a retracement.

It should be noted that according to market sources, the actual WM Fix was 152.325, meaning the potential savings from the 20-minute window would have been around 10% more, thanks to the longer calculation capturing more of the broader downtrend.

Every month, The Full FX is selecting an emerging market currency pair at random, and before the data is available, to broaden the analysis – this month the selected pair is USD/TRY. Data is again provided by Siren FX according to the same guidelines in place for the regularly reported currency pairs.

Again there was a significant disparity between the NCFX-derived rate and that published by WM, with the former coming in at 34.2855, compared to the what sources confirm to The Full FX was the 10.29025 WM rate. For context, this amounts to almost $140 per million in extra cost on top of the $377 per million used here.

Source: Siren FX

Although price action in USD/TRY exhibited some signs of hedging ahead of the WM window, again the main spike in the rate came in the early part of the window when it jumped to the high of the day, before, again, retreating into the WM close. Overall, price action around the top of the hour demonstrated dollar buying, the spike in the five-minute window could be seen as providing more evidence that either LPs were not prepared to warehouse trades at the Fix, or that the volume was too much for a five-minute window.