Benchmarks in the Spotlight: The Impact on Exchange Traded Markets

Abstract

The Fix for precious metals is a global pricing benchmark that provides pricing and liquidity provision for market participants. We exploit the gradual change in the century old auction process to quantify the efficiencies related to more transparent pricing for several precious metals. Our focus is on the market impact of this change on exchange listed products. We find that reforms to the Fix structure have reduced quoted and effective bid-ask spreads for exchange traded futures contracts and improved overall market depth. The results imply a positive spillover effect stemming from more timely and accurate pricing information. The conditions under which we observe the benefits from transparency are related to product liquidity and the degree of market segmentation.