Regulators back widening of FX fixing window to five minutes - sources

By Patrick Graham

LONDON (Reuters) - Global regulators have decided to back a widening to five minutes of the 60-second window during which daily currency reference rates are fixed, as part of industry efforts to overhaul the world's biggest market, banking sources said on Tuesday.

After a year in which allegations, sackings and suspensions have rocked the $5 trillion-a-day market, officials from the Financial Stability Board last week detailed recommendations for change to be presented to a G20 summit in Brisbane in November.

Banking sources told Reuters the FSB had weighed a series of proposals from banks on how much to extend the period over which the daily reference points are set and decided to back a four-fold widening of the current window.

Experts argue that the longer the period over which currency trades are aggregated, the less chance there is for a handful of traders to influence the final fixing.

Activity around the WM/Reuters currency fix at 4 pm local time in London is at the heart of a global investigation into allegations that traders colluded and used client information improperly to influence pricing.

The FSB declined to comment on any of its findings and said it would publish details at the end of this month.

At the meeting in Cairns, Australia last week, the FSB also approved recommendations from its working group on benchmarks that banks segregate orders for the "fixings" from trading desks, the sources said.

After feedback from the industry, however, the body has shelved the idea of a new central utility to match off and execute fixing orders as too expensive and potentially counterproductive, they said.

"From what we understand the final recommendation will be for a five minute wide window," one of the sources told Reuters.

"There is no recommendation for a central clearing facility but they have decided that the fixing flows will be separated from other flow business through a system of Chinese walls."

A second source confirmed the rough outline of what had been agreed by the FSB.

SEGREGATION

The FSB last month published responses from more than 30 asset managers, banks and industry associations to its initial report, which laid out 15 proposals for changes to the fixings.

The responses had shown banks and their clients agreed on the need to expand the window, on the assumption that it would be harder for individual players to influence pricing over a longer period. But there were also warnings, particularly from a number of smaller firms, that extending the window would also extend the risk players would be exposed to.

The sources said the five-minute period was a compromise between the two ideas.

The proposals are broadly part of efforts by the financial sector to deal with the latest row to erupt over alleged market manipulation since the 2008 financial crisis.

Whether they will convince politicians and the public that the foreign exchange market has cleaned up its act, however, is likely to depend more on the outcome of ongoing investigations.

More than 30 dealers at banks have been suspended or fired since the revelations on the fixings were published more than a year ago, but no one has been charged.

Banking and legal sources told Reuters earlier this month that banks caught up in the British investigation are pushing for a coordinated settlement to help limit the damage to their reputations.

"These proposals will be implemented as quickly as possible. I would expect it to happen quite quickly," said one source.

The proposal to isolate fixings flows at banks will probably mean changes in the layout of trading floors and potentially the hiring of new staff, the source said.

"Just looking at the way Chinese walls are implemented elsewhere, I would imagine the traders would physically sit on a different floor," the source said.

"Fixing orders tend currently to be handled by the spot desks, and that will obviously change."

(Editing by Mike Dolan, Larry King)