Integral Development Corporation, a leading service provider to FX market participants, today announced Integral FX Benchmark (FXB), a set of second-by-second foreign exchange benchmark rates for major currency pairs.
Based on the broadest available set of market rates and trades, joint research work with Stanford University and feedback from buy-side FX market participants, FXB will provide first-of-its kind benchmark rates for each second of each trading day. Utilitarian traders and investors stand to significantly benefit from this innovative approach in evaluating the execution quality of their trades and performing transaction cost analysis (TCA). By making such critical information accessible at no cost, Integral continues on its mission to promote overall market efficiency and growth.
Unlike many asset classes, foreign exchange currently has no source of reference rates that allow investors and traders to benchmark their execution on a continuous basis. The existing fixing rates are calculated infrequently and are not widely available.
"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," said 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."
A reliable FX benchmark is also a key ingredient for performing meaningful 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," said 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."
Integral and Stanford University have collaborated to develop underlying methodologies for the calculation of once-a-second benchmark rates based on data from Integral's liquidity aggregation and OTC FX trading network. Stanford's Kay Giesecke, Associate Professor of Management Science and Engineering said, "The Integral FX Benchmark is a perfect example of how Stanford collaborates with the industry to conduct research that helps revolutionize the use of Big Data for the benefit of market participants. Access to accurate information is a key component of market efficiency that drives growth and innovation."
"From its inception twenty years ago, Integral has been focused on increasing market transparency and reducing friction. It is part of our DNA," said Harpal Sandhu, CEO, Integral Development Corp. "As a neutral technology service provider that operates one of the largest OTC FX networks, Integral is in a unique position to offer this service for the FX market."
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: AUD/USD, EUR/USD, GBP/USD, NZD/USD, USD/CAD, USD/CHF and USD/JPY. The service will commence on January 15, 2014.