The forex fixing reform and its impact on cost and risk of forex trading banks

This paper quantitatively evaluates the cost and risk of banks trading at the Forex London fixing, and examines the impact of the reform of February 2015. Based on the model calibration, we find that (1) the widening of the fixing time window, a main reform agenda, did not reduce the cost for banks but increased the risk of using pre-hedge; (2) the path of the actual trading volume pattern after the reform is consistent with theoretical predictions in a case of not being able to influence the fixing price.