We are using Reuters datafeed to get our daily FX rates. For audit purpose, we need to understand what is the source of these bid, ask and mid rates published by Reuters. Could someone help?
Thanks a lot
Sorry for being late to the party.
FX spot trading is an OTC product which means there really is no authoritative source. If you want prices that are generally accepted as "the price of that day" then go with the fixing rates from the central banks. For example the European Central bank publishes some 30 crosses against the EUR (RIC: ECBREF=). They come as one-sided prices only.
Another source would be WM/Reuters benchmark rates. These have been around for some 20 years and are also generally accepted by market participants as an accurate reflection of the market. They come in different forms, down to half-hourly benchmarks. They have both bid, ask and mid rate as far as I remember. See RIC WMRMENU for more information.
If you only need a price once per day I would consider one of the above sources rather than the one you are using now.
The one you use are also pretty accurate. At least it is continuously updated if that is important to you. Bear in mind though, that the prices contributed by banks to the Thomson Reuters information network (what used to be called the IDN) are indicative prices. Also banks do not necessarily contribute throughout the 24 day. Banks are under no obligation to contribute a correct price, other than normal code of conduct. This being said I've never come across a bank that would deliberately contribute a very wrong price, even if these prices are only indicative. Such behaviour would probably quickly be singled out by other banks. However, indicative prices can never be as accurate as tradable prices. That's just the way it is.
This leads me to the most accurate price source there is for FX spot: trading venues for FX, in particular those used for interbank trading. Unfortunately liquidity is spread over trading venues and there's no single "winner" venue. It used to be so that the most accurate price for EUR/USD was to be found on the EBS system while the most accurate price for Commenwealth currencies and Scandies would from the Reuters Dealing platform. Don't know if that's still true. As I said it is difficult to find a single truth. If your aim is re-evaluate in real-time large positions in FX spot (large, meaning that 4th, 5th or 6th decimal plays a significant role to you, as does the size of the bid/ask spread) then there really is no alternative to tradable prices.
(end of ramblings)
Thanks for your response. We are using the standard Robust Foundation API (RFA) using a Java connector. The RICs used are standard as you mentioned, EUR=, JPY= etc.
The question is, for example, Reuters data-feed fetches a bid rate of 1.1234 for EUR/USD for example, what is the source of this rate? Is ts average of top 10 bank quotations etc.?
We need some proper documentation on this for a audit as these rates are used group-wide as in-house rates.
Thanks a lot
Hi Pankaj - the rates on the RIC types you mention are aggregated from all the indicative contributions we receive from banks, brokers etc. We check the rates are in line with the market and then pass-through the contributed bid/ask exactly as it was contributed to us, and it is fully attributed to the source.