What Are WM/Reuters Benchmark Rates?
WM/Reuters FX benchmark rates are standard spot and forward foreign exchange rates used for portfolio valuation and performance measurement. The WM/Reuters Closing Spot Rate service, first introduced in 1994, provides forex rates that allow portfolio valuations to be compared more accurately against each other and financial benchmarks, without being affected by currency differentials.
The benchmark rates, provided by Thomson Reuters, were obtained from the World Markets Company (WM) in 2016.
Overview of WM/Reuters Benchmark Rates
Initially, the WM/Reuters service offered closing spot rates for 40 currencies daily. It has now expanded to cover 155 closing spot currencies on an hourly basis. Additionally, the service provides hourly intraday rates for spot, forward, and non-deliverable forwards (NDF) as well as historical data.
These benchmark rates are widely used not just by major equity and bond index compilers but also for other purposes, such as calculating settlement rates for financial derivatives. Many banks offer a service to their clients, guaranteeing trades at the WM/Reuters rates.
Key Takeaway
- WM/Reuters Benchmark Rates are critical spot and forward exchange rates used for valuation and performance measurement of portfolios.
Determining the Rates
The WM/Reuters benchmark rates are determined over a five-minute period, starting 2 minutes and 30 seconds before the time of the fix, which is typically 4 p.m. London time. During this timeframe, bid and offer rates are captured from the trading system, along with actual trades executed.
The median bid and offer are then calculated from these rates, and the mid-rate is derived from the median values. This practice forms the backbone of financial portfolio valuations involving trillions of dollars held by money managers and pension funds.
However, the method faced scrutiny in 2013 after allegations of traders’ collusion and rate manipulation surfaced.
Related Terms: Foreign Exchange, Forex, Currency Forwards, Non-Deliverable Forwards, Financial Derivatives.
References
- Refinitiv. “WM/Reuters FX Benchmark Statement: WM/Reuters Closing and Intraday Spot, Forward and NDF Rates”, Pages 2-3.
- Thomson Reuters. “Thomson Reuters Acquires WM/Reuters Foreign Exchange Benchmarks From State Street Corporation”.
- Financial Stability Board. “Foreign Exchange Benchmarks: Final Report”, Pages 1-2.
