Transcript of Question & Answer Session FX Benchmarks

I'll just speak up loud if that's okay … [unclear]. Unfortunately I'm not going to ask you about monetary policy and where the Aussie is at the moment, I'm actually going to ask you about this.

Good.

The - we've obviously experienced around a third of our rates, pretty much close to ready – having for readiness for Monday. I guess for the rest of them it's business as usual. How tolerant are you in timing for this? I know you said otherwise they will be regulated but, you know, you going to put a time frame on that for expectations?

Sure.

Sorry, can I just add a few more points to that as well. Things that are linked to benchmarks, like the 4pm fix, such as NDFs, how prescriptive are you going to be about that? One could argue that the initial start of trade is actually the principal rather than the principal price would be on screen and then therefore might suffice for the actual whole product rather than the back end of the product being in agency pricing.

On the degree of tolerance, I mean as everyone knows in the end – there is no FX market regulator. There are securities market regulators in the various jurisdictions, clearly, with different degrees of appetite for enforcement around this. But we haven't – we didn't set out a time frame, we haven't yet, it may well be the case that in the not too distant future we will. But as – I mean I suppose our assessment was that given the reasonable degree – but not universal, I get that – of market support for what we were proposing that we thought the follow- through on most of what we were proposing would occur. To date, as you said, it hasn't. I think wait and see where we are this time next week to be honest because I think we will see a bit more movement in the next few days in terms of how wide-spread the adoption is. But – so my aim is to sort of take a stock take of where we are, say, around about the end of the month, have a look at that and then decide whether, you know, harder deadlines need to be set particularly around the pricing.

On NDFs, I mean one of the other points I suppose we wanted to get across is you know customers should be clear when the bank they're dealing with is acting as principal and when they're acting as agent. And as I said how you want to charge for those two things depends on which of the two – potentially depends on which of the two it is. So long as everyone knows and it's clear what's going on, that's fine. I think that hasn't been the case in the past. If nothing else I think all of this has actually caused some people to actually think well maybe I should have a look at it, have a look at this in more detail. Well I mean to some extent the movement to the fix came about because of other goings on in the FX market in the middle of last decade, or five, six, seven years ago I suppose, which caused people to move to a more obvious reference point which was the 4pm fix. So that actually came in response to a previous pricing model and lack of transparency around principal and agent business. And so people thought okay I move to a transparent price I can just forget about it. I suppose our point is no you can't quite just forget about it. You also need to do a reasonable amount of due diligence around the way your business is being executed even at a known price like the 4pm fix.

Thanks, Chris Loong from the Commonwealth Bank. Guy you mentioned some discussions with asset, sorry index providers, did you get any feedback that they may consider using FX rates, fixing rates away and less reliant on London 4pm?

No, so I mean, sorry yes, so that came up; no, that's not my sense. So the 4pm fix is so embedded within any number of things across the industry, that would be difficult for them to do it. What they said, however, is that their business is all demand driven, so if someone comes to them and says I want an index which uses some other reference rate they will provide it. So they're happy to do that but they said that from their point of view all of, you know all of their business basically is from people who want to use the 4pm rate. So I mean as some of you may know and others may not, so WM actually provides fixing rates for the major currencies pretty much every half hour throughout the whole day. So there are plenty of other times available. WM's also not the only provider of reference rates, there are others.

So there are alternatives out there, there are alternative times of day out there as well, so if you're not tracking an index which references 4pm, there are other times where you can still trade off around a benchmark rate besides 4pm London. That said, as you know as I said the volume at 4pm is ten times larger than it is at any other time of the day which if you just use volume to judge liquidity, which doesn't always work, anyway arguably it's the most liquid time of the day, so you can understand why people gravitate towards that. But at the same time we have seen over the last year, 18 months, or two years maybe now, people move some of their business away from the 4pm rate if they don't actually have to execute at it. Anyone else? I'm not sure how we're going on time but one more.

Tony Brady from Market Capital I spent most of my career in banks dealing with [unclear]. Now a lot of … authority to penalise traders for collusion et cetera is based around protecting your own position, for example you get to buy 500 Euro at the fix and you probably get to sell 500, it's a lot more efficient if you are running around in circles to match each other. So have the central banks and regulatory authorities thought about taking submissions from all those requiring fixes and netting them all out and then transacting business in the market …

Yeah so that's actually what I – I did actually mention that during our talk so yes we put it out there in our – in the preliminary report we actually put out exactly what you just said, which was the central netting utility which does exactly that, collecting all the fixing orders in the market, netting them down and then executing. So the first part conceptually at least isn't too hard to come up with, gathering all the orders and maximising the netting opportunities. The second part is how you actually would then execute the net was more complicated. We were quite happy to hear people's suggestions as to how that might actually go about, might actually happen. We talked a lot amongst ourselves, we talked a lot with other market participants about how that might actually happen and didn't get to anything particularly conclusive. That option I think still remains open as potentially where the market may, well I'm not sure that the market's going to gravitate towards that because you're going to need someone to actually co-ordinate and pull that into one central location. I still think that is an option which is on the table in the future. We didn't push it on the market in our final report, but we did say you know it is out there, it's something we talked about quite a bit and certainly remain open to constructive suggestions as to how such a utility might actually – might actually function in the market, so still remain very open to hearing thoughts around that. Right, okay thanks.