Top Brokers to Charge for Forex Trading at Fix
Best Forex Brokers and Banks including Barclays PLC, Deutsche Bank AG and Credit Suisse Group AG are planning to charge clients for carrying out forex trades at the so-called 4 p.m. fix, according to people familiar with the matter.
The fix, a key currencies benchmark, was a central focus of the recent investigation into alleged wrongdoing in the foreign-exchange industry. The banks will start charging the fees after a new way of calculating the benchmark kicks in on Feb. 15, the people familiar with their plans said.
The unit of State Street Corp. that produces the fix at 4 p.m. London time announced its new methodology in November. The new approach involves taking an average price for trades conducted over a five-minute period, instead of the current one-minute slot—a change suggested by global regulators that is meant to make it much harder for bank traders to try to influence prices.
Previously, banks have conducted these transactions free of charge.
People familiar with the matter say that the level of fees levied by banks will vary according to the needs of each client.
In September, the Financial Stability Board called for a wider window during which the benchmark is calculated to reduce the potential for manipulation. The FSB also said that “clearly communicated” fees may be appropriate.
The decision to charge clients could affect whether they use the fix, said Alex McDonald, chief executive at Wholesale Markets Brokers’ Association.
“This will likely diminish the attractiveness of this fix as a standardized Forex rate for commercial transactions and reference,” he said.
The moves come amid major upheaval in the forex industry.
Last November, six banks paid a total of $4.3 billion to regulators in the U.S., U.K. and Switzerland over accusations that they allowed traders to share information and profit unfairly at their clients’ expense.
While investigations by banks and some regulators are continuing, some currencies-dealing banks are trying to clean up their business.
“We are engaged with [banks], the regulators, and the buy-side on how to best implement ethical conduct codes,” said Marshall Bailey, chairman of industry body the ACI.
The ACI released on Monday a new set of voluntary guidelines that urge banks to be clearer about their pricing policies. One area of focus is so-called last-look provisions, which allow banks to change the prices at which they conduct trades after clients already have agreed to them.
The practice, which isn’t routine, is meant to prevent forex brokers booking trades at inappropriate levels in the case of system glitches, but it is open to abuse if a bank chooses not to honor a price to avoid losses or make a profit.In line with another FSB recommendation, Deutsche Bank and Credit Suisse also plan to separate benchmark-related trades from other trading activities to avoid allegations of conflicts of interest for traders, according to people familiar with their plans.
“Last look has been a long-standing issue. It has been subject to allegations of misbehavior,” said David Woolcock, chairman of the Forex committee of the ACI.
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