Integral Launches Free FX Benchmarking Tool

FX service provider Integral Development has launched a free tool, Integral FX Benchmark (FXB), which is a set of second-by-second foreign exchange benchmark rates for major currency pairs.

Previously, reference rates for foreign exchange were calculated infrequently, but Integral took the broadest available set of market rates and trades, conducted joint research with Stanford University and obtained feedback from buy-side FX market participants in order to provide benchmark rates by the second.

“A major problem with rate ‘fixings’ is that ‘fixings’ are based on a snapshot in time. Fixings, a fixed concept, are then applied to a flow concept of non-liquidating investment assets as a means to price those assets; as if all those assets could be liquidated at that fixed price,” says Eric Busay, portfolio manager, global fixed income and currency at CalPERS. “Availability of once-a-second benchmark rates will help alleviate that problem and make the currency market more efficient and less subject to distortion.”

The availability of this data will help investors in performing transaction cost analysis (TCA). “Implementing a transaction cost model in FX has always been challenging due to a lack of intra-daily benchmark rates that will allow modeling and also allow one to correctly assess implementation shortfall going forward,” says Michael Melvin, managing director and senior research advisor at BlackRock. “Even if one had a historical data set to allow model estimation, the challenge has been to have a proper continuous exchange rate series that supports trade evaluation on an ongoing basis.”

Beginning January 15, 2014, Integral FX Benchmark Rates will be available for download each day after the close of trading in New York, initially for the following currency pairs: Australian Dollar/U.S. Dollar (AUD/USD), Euro/USD, British Pound Sterling (GBP)/USD, New Zealand Dollar (NZD)/USD, USD/Canadian Dollar (CAD), USD/Swiss Franc (CHF) and USD/Japanese Yen (JPY).