Fixing the Fix? Assessing the Effectiveness of the 4pm Fix Benchmark

We examine the design and effectiveness of the 4pm Fix, the most important benchmark in FX markets, using a unique dataset of trader identified order book data from an inter- dealer venue. We propose and examine new measures of benchmark quality and examine changes to market liquidity and trader behaviour. Benchmark quality, measured as price efficiency and robustness, improves after the lengthening of the fix window to 5 minutes, but comes at the cost of a significant increase in tracking error for users of the benchmark. We also find that quoted spreads and price impact increase following the window lengthening, with HFTs trading more aggressively during the fix.