The Liquidity Crisis in FX Benchmarks: Why FTSE Russell's Currenex Removal Spells Trouble for EUR/JPY/CHF Investors

The removal of Currenex data from FTSE Russell's EUR, JPY, and CHF WMR spot rate benchmarks on June 22, 2025, marks a pivotal moment in the evolving landscape of foreign exchange market integrity. While FTSE has assured investors that the decision aligns with transparency and liquidity standards, the move underscores a deeper systemic risk: the shrinking liquidity pools of its primary data sources, EBS Market and LSEG Matching, and the erosion of benchmark representativeness for major currencies. For investors reliant on the WMR Fix—a cornerstone of fixed-rate transactions—the stakes could not be higher. This article dissects the implications and outlines urgent strategies to mitigate the looming risks.

The Liquidity Crunch: A Crisis of Representation

The WMR benchmarks, including the critical London 4pm Fix, are now overwhelmingly dependent on EBS and LSEG Matching, which collectively account for just 4% of global spot forex volume. This minuscule slice of liquidity has long been a point of contention. FTSE's decision to drop Currenex—a fallback solution for the three currency pairs—was framed as a move to prioritize transparency. Yet the reliance on these dwindling pools exposes a paradox: benchmarks designed to reflect market consensus are increasingly divorced from the majority of trading activity.

The problem is exacerbated by the decline of traditional central limit order books (CLOBs). Once dominant, these platforms now struggle against decentralized liquidity pools and dark pools, which offer greater anonymity but lack the “all-to-all” transparency required for benchmark-grade data. FTSE's rejection of Cboe FX—a newer platform with curated liquidity—highlights the challenge: alternative sources either fail to meet representativeness criteria or conflict with the rigid CLOB model demanded by regulators like the FCA.

Implications for Investors: The Mispricing Risk Multiplier

Investors using the WMR Fix to price derivatives, swaps, or structured products face a stark reality: benchmarks increasingly reflect a niche slice of trading activity. This disconnect creates two critical risks:
1. Mispricing During Critical Fix Windows: The London 4pm Fix influences trillions in cross-border transactions. If liquidity is concentrated in opaque venues, speculative traders could manipulate prices during the Fix window, distorting reference rates.
2. Reduced Hedge Effectiveness: Corporations and institutions using WMR benchmarks to hedge currency exposure may find their hedges increasingly mismatched with real-world market conditions.

The urgency is magnified by the volatility of EUR, JPY, and CHF pairs, which are already prone to sharp swings due to macroeconomic shifts (e.g., ECB policy, Japan's fiscal reforms). A benchmark that fails to capture true market dynamics could amplify losses.

Strategic Recommendations: Diversify, Hedge, and Monitor

Investors must act preemptively to insulate portfolios from benchmark distortion. Here's how:

1. Diversify Benchmark Exposure

Reduce reliance on WMR Fix by incorporating alternative benchmarks such as Cboe's FX Continuous Auction or ICE Benchmark Administration's (IBA) FX rates, which aggregate broader liquidity pools. While not yet mainstream, these alternatives may offer better representation of decentralized trading.

2. Use Liquidity-Sensitive Derivatives

Opt for FX derivatives tied to volume-weighted average prices (VWAP) or real-time aggregated liquidity feeds, which dynamically reflect market activity. Products like the LSEG FX Options or EBS Volatility Swaps could hedge against WMR Fix distortions.

3. Pressure for Regulatory Innovation

Advocate for benchmarks to evolve beyond CLOB dependency. FTSE's exclusion of platforms like Cboe suggests a need for flexible standards that accommodate modern liquidity structures—without compromising transparency.

4. Monitor Liquidity Metrics

Track metrics like EBS Market's daily trading volume and LSEG's order book depth to anticipate WMR Fix volatility. A sustained decline in these metrics could signal the need for immediate hedging adjustments.

Conclusion: A Call to Reassess Risk

The removal of Currenex is not merely a technical adjustment—it's a warning shot. As liquidity pools shrink, the EUR/JPY/CHF WMR Fix risks becoming a relic of a bygone market structure. Investors must treat this as an inflection point: diversify benchmarks, leverage liquidity-aware derivatives, and demand innovation in benchmark design. The alternative is to remain vulnerable to mispricing risks that could erode returns in an increasingly fragmented forex landscape.

The clock is ticking. By June 22, the new WMR benchmarks will be in place. The question is: will investors be prepared?

This analysis reflects conditions as of June 6, 2025. Always conduct independent research and consult with a financial advisor before making investment decisions.