Price Manipulation and Collusion around the London 4pm Fix

50 Pages Posted: 20 May 2024

See all articles by Paolo Colla

Paolo Colla

Bocconi University - Department of Finance; Bocconi University - BAFFI Center on International Markets, Money, and Regulation

Walter Distaso

Imperial College Business School

Paolo Vitale

G. d'Annunzio University - Dipartimento di Economia

Date Written: May 7, 2024

Abstract

Inspired by several investigations on the manipulation of the London 4pm Fix, we develop a model of price manipulation and collusion. In our model, several large dealers receive “fill-at-Fix” orders well before the time interval over which the benchmark rate is set. As long as dealers share information on their clients’ hedging demand and coordinate their trading activity, they find it profitable to front-run their clients’ orders. Information sharing and collusion affect price dynamics and market quality. Thus, front-running generates larger transaction costs and volatility before than during the Fix period and price manipulation intensifies when the volume of FX hedging demand increases (for example, during end-of-month days). These implications are confirmed empirically in our analysis of FX spot market, based on EBS transaction data for the EUR/USD rate.

Keywords: FX Market Microstructure, Price Manipulation, London 4pm Fix

JEL Classification: F31, G14, G15

Suggested Citation

Colla, Paolo and Distaso, Walter and Vitale, Paolo, Price Manipulation and Collusion around the London 4pm Fix (May 7, 2024). Available at SSRN: https://ssrn.com/abstract=4819478 or http://dx.doi.org/10.2139/ssrn.4819478

Paolo Colla

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Walter Distaso

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Paolo Vitale (Contact Author)

G. d'Annunzio University - Dipartimento di Economia ( email )

I-65127 Pescara, Pescara
Italy
+39 085 453 7647 (Phone)
+39 085 453 7565 (Fax)

HOME PAGE: http://www.unich.it/~vitale/

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