(Bloomberg) — The best way to fix currency and other markets dogged with allegations of cheating by banks is to shift trading out of the darkest corners and onto centralized venues such as exchanges, according to BlackRock Inc.
That means shifting fixed-income, commodities and currencies trades to public venues where greater scrutiny is possible, the asset manager said last Thursday in response to the Bank of Englands Fair and Effective Markets Review.
Addressing FICC market microstructure is perhaps the most important way to mitigate against potential future misconduct, according to New York-based BlackRock, the words biggest money manager. Principally this would mean the market evolving to move away from incumbent over-the-counter environments to increasing use of centralized venues with the attendant higher standards of transparency and electronification.
Trust in markets has been eroded by abuses ranging from attempted manipulation of benchmarks to misleading customers about the assets sold to them, according to the FEMR.
In the foreign-exchange market, regulators in the U.S., Britain and Switzerland have ordered six banks to pay about $4.3 billion in the first wave of penalties since authorities began a global probe into the rigging of currencies trading.
Global regulators have been working on tougher oversight of benchmarks. The International Organization of Securities Commissions, a Madrid-based group that harmonizes global market rules, published guidelines in 2013 that said banks must tackle conflicts of interests in setting rates.
The key is to restore confidence and credibility in the critical benchmarks through reform while encouraging the development of alternative benchmarks, according to BlackRock.
