Forex Trading and the WMR Fix

Since 2013 regulators have been investigating the activities of some of the world's largest banks around the setting of daily benchmarks for forex prices. These benchmarks are a key linchpin of world financial markets, providing standardize prices used to value global equity and bond portfolios, to hedge currency exposure, and to write and execute derivatives' contracts. The most important of these benchmarks,called the "London 4pm Fix", "the WMR Fix" or just the "Fix", is published by the WM Company and Reuters based on forex trading around 4:00 pm GMT. This paper undertakes a detailed empirical analysis of the how forex rates behave around the Fix drawing on a decade of tick-by-tick data for 21 currency pairs. The analysis reveals that the behavior of spot rates in the minutes immediately before and after 4:00 pm are quite unlike that observed at other times. Pre- and post-Fix changes in spot rates are extraordinarily volatile and exhibit strong negative serial correlation, particularly on the last trading day of each month. These statistical features appear pervasive, they are present across all 21 currency pairs throughout the decade. However, they are also inconsistent with the predictions of existing microstructure models of competitive forex trading.