Benchmarks in the spotlight: The impact on exchange traded markets

Abstract

The Fix for precious metals is a global pricing benchmark that provides pricing and liquidity provision for market participants. We exploit the gradual change in the century old auction process to quantify the efficiencies related to more transparent pricing. Our focus is in the market impact of this change on exchange listed products. We find that reforms to the Fix have reduced quoted and effective bid-ask spreads and improved overall market depth. The results imply a positive spillover effect stemming from timelier and more accurate pricing information. The conditions under which we observe the benefits from transparency are related to product liquidity and the degree of market segmentation.

To Fix or Not to Fix: The Representativeness of the Wm/R Methodology that Underpins the FX Benchmark Rates. A Pre-Registered Report

“…To address the third research question, instead, we employ an event study methodology similar to Aspris et al (2020), thus examining the time directly surrounding each daily 4 pm Fix. We compute different liquidity measures following the mainstream 4 Although we share a similar aim with the study of Evans et al (2018), we are unable to fully replicate their analysis given the absence of trader-level information and the lack of an effective window length change that they use to execute an event study.…”

“…approach in the market microstructure literature. Consistent with Aspris et al (2020), we measure liquidity in basis points first as the raw bid-ask spread:…”

“…where 𝑎 𝑖𝑡 is the lowest ask price prevailing on either venue for currency 𝑖 at time 𝑡, and 𝑏 𝑖𝑡 is the highest bid price. Consistent with the timestamp used in Aspris et al (2020), we calculate the measures within 5-second buckets. Although the focus of this paper is on the ''raw'' bid-ask spread, the empirical literature also refers to the percentage spread in cents calculated as rbas 𝑖𝑡 = ( 𝑎 𝑖𝑡 − 𝑏 𝑖𝑡 ) ∕𝑚 𝑖𝑡 , where 𝑚 𝑖𝑡 is the prevailing midpoint between the best ask and best bid prices, 𝑚 𝑖𝑡 = ( 𝑎 𝑖𝑡 + 𝑏 𝑖𝑡 ) ∕2.…”

“…Although the focus of this paper is on the ''raw'' bid-ask spread, the empirical literature also refers to the percentage spread in cents calculated as rbas 𝑖𝑡 = ( 𝑎 𝑖𝑡 − 𝑏 𝑖𝑡 ) ∕𝑚 𝑖𝑡 , where 𝑚 𝑖𝑡 is the prevailing midpoint between the best ask and best bid prices, 𝑚 𝑖𝑡 = ( 𝑎 𝑖𝑡 + 𝑏 𝑖𝑡 ) ∕2. Following both Evans et al (2018) and Aspris et al (2020), we compute the cost of a round trip transaction in basis points for the liquidity demander as measured by two times the difference between the transaction price and the prevailing quote midpoint:…”

Short-Term Rate Benchmarks: The Post-LIBOR Regime

“…Ysusi, Pirrone & Suntheim (2018) document similar improvements. Aspris, Foley & O'Neill (2020) study the changes in 2014 to the precious-metal fixings of the London Bullion Market Association (LBMA), from closed auctions among a limited number of dealers to open and transparent electronic auctions. They find that the change decreased market spreads and improved market depth.…”