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The WM/Reuters 4 pm London fix caught pants down

On 30 September 2014, the FSB published the Final Report on Foreign Exchange Benchmarks, along with the Review of the implementation of IOSCO principles on financial benchmarks in connection with the WM/Reuters 4 pm Closing Spot Rate.

Final Report on FX Benchmarks

The Final Report contains 15 broad recommendations, covering:

  • WM/Reuters 4pm London fix
  • Central bank reference rates
  • Pricing of fixing transactions
  • Collection and execution of fixing orders by banks, and potential conflicts of interest
  • Market-makers conduct with regard to trading positions and order flow
  • Codes of conduct containing best practices for trading FX
  • Use of FX fixes by index providers and asset managers

Although these recommendations are likely to be implemented voluntarily by the market, parallel regulatory initiatives are already in motion. In the UK, the Fair and Effective Markets Review recommended that the WM/Reuters fix should be regulated by the FCA, alongside LIBOR.

Review of WM/Reuters 4 pm London fix

The WR/Reuters 4 pm London fix is by far the dominant benchmark in FX, but is also used as a key input in multi-currency equity, bond and credit indices. The Review Team was constituted by IOSCO members.

Like the administrators of Euribor, Libor and Tibor, WM/Reuters had only a limited amount of time to implement the principles, published in July 2013. The IOSCO Review Team sent a questionnaire to WM/Reuters on April 16 2014, with responses to be returned by 2 May 2014. In comparison, The “X”IBOR benchmark administrators received the questionnaires on 13 January 2014, with responses to be returned by 7 February 2014.

The review directed at Euribor, Libor and Tibor had mainly revealed weaknesses in the implementation of two principles: principle 7 on data sufficiency, related to accuracy and reliability of a benchmark, and principle 9 on transparency of benchmark determinations.

The review of WM/Reuters 4pm London fix is a more ominous one.

Principle Implementation
1 Overall responsibility of the administrator Further work needed
2 Oversight of third parties Further work needed
3 Conflicts of interest for administrators Further work needed
4 Control framework for administrators Further work needed
5 Internal oversight Further work needed
6 Benchmark design Further work needed
7 Data sufficiency Further work needed
8 Hierarchy of data inputs Broadly implemented, but some actions recommended
9 Transparency of benchmark determinations Further work needed
10 Periodic review Implemented
11 Content of the methodology Further work needed
12 Changes to the methodology Further work needed
13 Transition Further work needed
14 Submitter code of conduct Not applicable
15 Internal controls over data collection Further work needed
16 Complaints procedures Further work needed
17 Audits Implemented, but some actions recommended
18 Audit trail Implemented, but some actions recommended
19 Cooperation with regulatory authorities Implemented


The conclusions of the in-depth Review depart massively from the self-penned reassuring assessment published by the WM Company on 15 July 2014, claiming substantial compliance with the IOSCO principles on financial benchmarks. WM/Reuters has already undertaken substantial corrective measures following the recommendations of the IOSCO Review Team. A second review is announced for mid-2015.

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