Fixing the Fix? Assessing the Effectiveness of the 4pm Fix Benchmark

98 Pages Posted: 25 Oct 2018

See all articles by Martin D.D. Evans

Martin D.D. Evans

Georgetown University - Department of Economics

Peter O'Neill

Financial Conduct Authority

Dagfinn Rime

BI Norwegian Business School

Jo Saakvitne

BI Norwegian Business School

Date Written: October 22, 2018

Abstract

Appendix available here: https://ssrn.com/abstract=3381004.

We examine the design and effectiveness of the 4pm Fix, the most important benchmark in FX markets, using a unique dataset of trader identified orderbook data from an inter- dealer venue. We propose and examine new measures of benchmark quality and examine changes to market liquidity and trader behaviour. Benchmark quality, measured as price efficiency and robustness, improves after the lengthening of the fix window to 5 minutes, but comes at the cost of a significant increase in tracking error for users of the benchmark. We also find that quoted spreads and price impact increase following the window lengthening, with HFTs trading more aggressively during the fix.

Keywords: benchmark, foreign exchange markets, 4pm fix, market microstructure, transactions-based fixing

JEL Classification: D47, G14, G15, G18, F31

Suggested Citation

Evans, Martin D.D. and O'Neill, Peter and Rime, Dagfinn and Saakvitne, Jo, Fixing the Fix? Assessing the Effectiveness of the 4pm Fix Benchmark (October 22, 2018). FCA Occasional Paper. Available at SSRN: https://ssrn.com/abstract=3270844 or http://dx.doi.org/10.2139/ssrn.3270844

Martin D.D. Evans

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-687-1570 (Phone)
202-687-6102 (Fax)

Peter O'Neill (Contact Author)

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

Dagfinn Rime

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway
+47-46410507 (Phone)

HOME PAGE: http://home.bi.no/dagfinn.rime/

Jo Saakvitne

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Register to save articles to
your library

Register

Paper statistics

Downloads
203
Abstract Views
1,030
rank
149,807
PlumX Metrics