One global index provider is to offer an independently calculated real-time spot currency benchmark service as it looks differentiate itself from the current practice of investors relying on reference prices or indices provided by banks and exchanges.
FTSE Group, in collaboration with institutional foreign exchange technology firm Cürex Group, is to establish real-time bid and offer spot FX indices from multiple institutional pricing sources on 192 currency pairs.
“There are a number of indices out there but the new FTSE one will be executable,” a market source, based in London, told Markets Media. “You will be able to execute the price that you see. It’s an accessible price in the market, rather than a reference price.”
The FTSE Cürex FX Index Series will see its benchmark indices published 24 hours a day and five days a week—encapsulating Asia, Europe and U.S. trading hours—for currency pairs and currency baskets.
The new executable benchmark currency baskets include the flagship FTSE Cürex USD/G8 Index, which is an equally weighted, real-time index designed to provide an improved valuation of the US dollar. The index consists of seven major currencies representative of global finance and commodity trading, plus the Chinese renminbi–the most important emerging Asian reserve currency.
FTSE's new benchmark FX indices can also be used to measure the performance of active currency strategies, and provide new tools for investors seeking to express a ‘risk on / risk off’ trade.
“The FTSE Cürex FX Index Series represents a step forward in the evolution of the global foreign exchange marketplace,” said William Dale, chairman and chief executive at Cürex Group.
FTSE, which is owned by the London Stock Exchange, says the new index series has received a positive response from both the buy and sell sides and brings a transparent and rules-driven methodology on both spot and FX strategies in order to provide greater transparency into the institutional FX markets.
“FX is the world’s largest capital market and currency exposure affects investors in all asset classes,” said Mark Makepeace, chief executive of FTSE Group. “This new series of FX indices will be used by our clients worldwide as a better benchmark for managing currency risk and performance, and will support a wide range of passively managed FX currency funds and strategies.”
Additionally, ‘snap’ indices will be published by FTSE every 15 minutes, 96 times per day, providing an independent, time-stamped valuation metric to enhance net asset value calculation and fuel the creation of new currency risk management tools and investment products.
Foreign exchange pricing is currently an opaque arrangement, where there is no independent standardized price in the market, but upcoming regulations are likely to see a battleground develop to take control of a potentially lucrative business in benchmark indices.
New regulations under the Dodd-Frank Act in the U.S. and the European Market Infrastructure Regulation in Europe, which are set to kick in from the start of next year, will see the foreign exchange derivatives market, like other asset classes, undergo some significant changes whereby all over-the-counter trades will have to be cleared through central counterparties, to reduce the risk of default. Benchmark indices will likely become a more attractive proposition to control as they will form the underlying reference price for trillions of dollars worth of investible products.