We have said in previous posts that trading with a bank for a fix later in the day, without paying the bank for the service (most fix trades are executed at the midpoint, avoiding even the usual bid offer spread paid for an immediate trade), is the source of much of the trouble with fixes. Clients wanted it and banks accepted it.
This article in FX Week (subscription) describes the problem that the banks have with these trades. Trading before or during the fix can bring accusations of front running or manipulation, and trading after the fix risks incurring losses, which banks have been particularly unwilling to risk since the financial crisis. Based upon the allegations in lawsuits and the regulatory and bank investigations underway, many suspect that some bank traders may have found ways to make profits on such trades anyway, including collusion among the banks.
For those who wish to continue fix trading, they may ultimately need to be willing to pay a bank to take on this risk or manage the risk around the fix themselves, either utilizing algorithms or traders with tight risk parameters. Managing the risk by the firm involves staffing/trading costs as well as the cost of variances between realized rates and the fix. At the moment there is no indication that banks are considering charging for fix trades, but with continuing compression in bank spreads on non-fix trades, eventually this may be part of the solution.
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