How Official and Reference Foreign Exchange Rates Are Set
Summary
The document explains that foreign exchange has no single universally correct rate. Central banks and market organizations publish reference rates for particular purposes, often at a specified local time and using a defined sampling or aggregation method. Examples include Brazil’s PTAX, based on observations during the day, Argentina’s MAE rate, described as a volume-weighted average of market trades, and a Russian exchange-traded pair fixing calculated from weighted price inputs over a short window.
For other times, tenors, or forward rates, traders may rely on commercial vendors and electronic platforms, whose data can differ without either feed necessarily being wrong. A benchmark’s governing methodology and its stated use matter: contracts specify which rate settles a derivative, while regulatory reporting may prescribe a particular reference rate. The examples show varied constructions rather than one standard formula, and the document notes that rates can conflict. Users should therefore check the relevant benchmark definition and source instead of assuming that “official” means a market-wide average.
Key ideas
- There is no single authoritative spot or forward FX rate across the fragmented market.
- Published fixings use benchmark-specific observation windows and aggregation methods.
- Reference rates from reputable sources may differ without being erroneous.
- The contract or regulatory purpose determines which fixing applies.
- A benchmark’s methodology and permitted use should be checked before relying on it.
Tags
Full text
# FX official rates
# FX official rates
How are "official" FX rates calculated? Are these given by an average across all big dealers or brokerage systems (eg EBS, Reuters)?
## Answer by Dimitri Vulis (score 6)
https://quant.stackexchange.com/a/61458
Many central banks publish official spot rates, usually once a day near local-time close.
For example, if you have a non-delivery contract involving Brazil real (BRL), then you most likely get the official BRL PTAX (BRL09) reported by the Banco Central do Brasil on SISBACEN Data System under transaction code PTAX-800 ("Consultas de Câmbio" or Exchange Rate Inquiry), Option 5 ("Cotacões para Contabilidade" or Rates for Accounting Purposes) and published around 1:15 p.m., São Paulo time. It is an average of several observations during the day. Likewise, if you have a non-delivery contract involving Argentina peso, you get ARS MAE (AR05) - the rate published by the Mercado Electronic Abierto on its website at approximately 3 p.m., Buenos Aires time, which represents the volume weighted average of all trades in the electronic market for this day in Argentina. Etc.
But if you're looking for intraday, or time other than their close, or forward rather than spot rates, then there are just "unofficial" data vendors. The most popular spot and forward rates seems to be WM/Refinitiv published by State Street subsidiary WM and Refinitiv (former Reuters). Of the many FX platforms, CME's Electronic Broking Services (EBS) is probably the best known.
## Answer by Attack68 (score 3)
https://quant.stackexchange.com/a/61469
The FX market is incredibly fragmented. There are no 'official' or correct FX rates, rather there is data that is compiled and distributed by reputable sources, such as central banks, or electronic dealer platforms, or even large trading house own pricing data.
This data may well conflict with each other, but it does not mean it is incorrect.
## Answer by Sergei Rodionov (score 3)
https://quant.stackexchange.com/a/61473
Here's an example of how exactly FX reference rates are being calculated for the exchange-traded USDRUB pair (`USDRUB MCDF Curncy` in Bloomberg, `USDFIXME=RTS` in Refinitiv). In this particular case, it's a 5-minute average of 300 per-second calculated "fixes" each determined as a weighted sum of VWAP and weighted mid-price. The multiple layers of averaging and weighting are not surprising given how much is tied to and settled based on these rates. At the same time, the calculated rates can be verified by anyone with access to Level 2 and last trade feed.
## Answer by AKdemy (score 1)
https://quant.stackexchange.com/a/63668
Whenever someone needs to compute an amount payable or the value of a financial instrument or contract, or wants to track returns of funds, compute indices (see Appendix I and II), compute (performance) fees and the like, there must be a uniformly agreed way of doing this. In other words, there must be a benchmark for transaction purposes.
Official (in many cases) means it's something that is not only reliable, transparent and representative but also compliant with benchmark regulations like IOSCO or EU BMR which carries over to the UK via the onshored BMR. Two of these officially approved fixings are WMR and BFIX. It is also important that it cannot be reverse engineered. Institutions are not only using the fixings for the aforementioned reasons, but also frequently agree in transacting at the fix (prior to knowing it). Therefore, the methodology must be in a way that it cannot be manipulated.
Thinking of derivatives, the term sheet defines what the reference rate is. While the ECB is obviously a trusted authority, it discourages the use of their FX rates as official fixings and wants them to be used for information purposes only.
On the other hand, for many regulatory purposes, the ECB mandates that currencies other than the reporting currency shall be converted to the reporting currency at the ECB FX reference rate on the reference date, see for example IRRBB Annex II, part 1, General instructions, 4..
This is different in different countries. PTAX in Brazil is widely used, also CFETS in China and so forth.Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.