LSEG drops plan to add Cboe data to WMR FX benchmarks

FTSE Russell has abandoned plans to incorporate Cboe's currency data into its WMR FX benchmarks following user concerns that the data was not sufficiently equivalent to existing primary sources, citing potential issues with liquidity, transparency, and market behavior influence. Additionally, FTSE Russell initiated a consultation to potentially remove State Street's Currenex data from its euro, yen, and Swiss franc WMR FX benchmarks, focusing on operational considerations, though Currenex data will continue to be used until further notice.

Analysis

FTSE Russell, a unit of the London Stock Exchange Group, has decided against incorporating Cboe's currency data into its WMR FX benchmarks for ten key currencies, a proposal made nearly a year ago. This decision stemmed from user consultations which indicated Cboe's data was not "sufficiently equivalent to the current WMR Spot FX Benchmark primary data sources," citing concerns over liquidity, trading parameters, availability, and potential "significant practical challenges and complexities." FTSE Russell further highlighted that including Cboe's data might have diminished benchmark utility by influencing market behaviors and reduced representativeness due to curated, non-transparent transactions. Cboe expressed disappointment but stated its intention to continue engaging with FTSE Russell and the FX industry on benchmark governance. Concurrently, FTSE Russell has initiated a consultation to potentially remove State Street's Currenex data as a source for its euro, yen, and Swiss franc WMR FX benchmarks, citing "operational considerations" like the appropriate notice period for stakeholders. Currenex data will remain in use pending the consultation's outcome, for which a confirmation will be provided "as expediently as possible." This series of actions underscores FTSE Russell's focus on maintaining the integrity and representativeness of its widely used FX benchmarks by carefully vetting data sources based on user feedback and operational viability.

Key Decisions for Investors

• Investors in Cboe Global Markets (CBOE) should note the setback to its FX data ambitions from FTSE Russell's decision, and monitor Cboe's future strategies for engaging with benchmark administrators and the FX industry concerning its data offerings.
• Holders of State Street (STT) should closely follow the FTSE Russell consultation regarding the potential removal of Currenex data for EUR, JPY, and CHF benchmarks, as this could impact the market standing of its FX data services if confirmed.
• FX market participants utilizing WMR benchmarks should prepare for potential adjustments in data sourcing, particularly for euro, yen, and Swiss franc, and evaluate any necessary operational changes arising from these benchmark methodology reviews.