The Fix

Epilogue: The Wild West

In the spring of 2013, while Tom Hayes was spilling his guts in a cramped interrogation room, we were across town in the wood-paneled dining area of The Old Doctor Butler's Head, a spit-and-sawdust pub nestled in an alleyway in the City of London. Across the table, nursing a mineral water, his eyes darting anxiously, was an executive from one of Europe's biggest fund managers. A few weeks earlier, as Libor blew through the U.K. like a tornado, he'd called the Bloomberg newsroom with a tip.

“I don't have any proof,” the fund manager explained when we asked him to take us through it one more time. “But I'm positive there's something wrong with the 4 p.m. fix. There has to be.”

The 4 p.m. fix is a currency benchmark set each afternoon in London that's every bit as pervasive in global financial markets as Libor. It's a once-a-day snapshot of exchange rates used to calculate the value of trillions of dollars of investments. FTSE and MSCI, for example, calculate their indexes using the rates. It can also determine how much money asset managers get when they swap one currency for another.

The big difference between the 4 p.m. fix and Libor is that it's based on actual trades rather than bank estimates. At the time of the meeting, WM/Reuters, the company that runs the benchmark, tracked currency trading over a 60-second period from 15:59:30 to 16:00:30, then calculated an average.¹ The process was used for 150 exchange rates: everything from euro-dollar to dollar-Bangladeshi ...