Warwick Business School Dean Professor Mark Taylor Comment On UK Chancellor George Osborne's Announcement To Make Foreign Exchange Manipulation A Criminal Offence

Commenting on George Osborne’s proposal to make manipulation of the foreign exchange market a criminal offence Warwick Business School Dean, Professor Mark Taylof, a former Bank of England and IMF Senior Economist and ex-foreign exchange trader. said: “Regulation of the market to make rigging of the reference rate illegal is certainly welcome and will send a signal to the rest of the world that cheating in London’s financial markets will not be tolerated, but my worry is that by itself it won’t be enough.

"The foreign exchange market is massive – around $5 trillion dollars traded per day – and it is by definition global, making it very hard to control and oversee. Also, the incentives to cheat are still massive, even when there is regulation in place.
 
“If we really want to make sure the foreign exchange reference rate isn’t rigged, we need to remove the incentives to cheat. At the moment the foreign exchange benchmark – the daily London 4pm fix – is made by taking the average of trades 30 seconds before and after 4pm, so if some large trades worth billions of dollars each are sent through it can move the rate a small amount and that could be worth millions of dollars to the traders.
 
“One solution would be to take away the temptation by taking the average over an hour - so 30 minutes either side of 4pm rather than 30 seconds. It’s a simple, workable solution because it would be a lot harder, if not impossible, to move a market as big as the FX market for an hour. Removing the incentive is much better than regulation because of the global, decentralised nature of the foreign exchange market.”