The system by which benchmark rates are fixed for interest rates, currencies and gold is an arcane and archaic one. There are two common elements when it comes to fixing such rates: One, the fixing is done in London, and two, the fix is implemented by a very select group.

Consider the fix for the London Interbank Offered Rate (LIBOR), the benchmark rate that is used as a reference for trillions of dollars in loans and swaps. LIBOR reflects the short-term cost of funds for major banks active in London. Prior to Feb. 1, 2014, LIBOR was administered by the British Bankers’ Association (BBA). Each day, the BBA would survey a panel of more than a dozen banks, and ask each contributor bank to base its LIBOR submissions in response to the following question – “At what rate could you borrow funds, were you to do so by asking for and then accepting interbank offers in a reasonable market size just prior to 11 a.m. London time?” The submissions received were then ranked in descending order, with the submissions in the top and bottom quartiles excluded as outliers and the arithmetic average of the remaining contributions used to arrive at the LIBOR rate. Separate LIBOR rates for 15 different maturities of 10 major currencies were then reported at 11:30 a.m.

In the foreign-exchange market, the closing currency “fix” refers to benchmark forex rates that are set in London at 4 p.m. daily. Known as the WM/Reuters benchmark rates, these rates are determined based on actual buy and sell transactions conducted by forex traders in the interbank market during a 60-second window (30 seconds either side of 4 p.m.). The benchmark rates for 21 major currencies are based on the median level of all trades that are executed in this one-minute period.

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The system by which benchmark rates are fixed for interest rates, currencies and gold is an arcane and archaic one. There are two common elements when it comes to fixing such rates: One, the fixing is done in London, and two, the fix is implemented by a very select...