The Bank of England published a staff working paper finding that synthetic dollar funding prices vary substantially by intermediary, even for near-identical foreign exchange forwards. Dealer-specific prices have an annualized standard deviation of about 4 basis points, while prices between the 10th and 90th percentiles of dealer-month observations differ by roughly 7 basis points. The findings indicate that dealer clientele and pricing power explain more of this dispersion than differences in underlying funding costs. Using confidential transaction data covering January 2021 through October 2025, the researchers compared forwards in the same dollar currency pair, half-hour execution window and maturity bucket across 14 major dealer groups. Dealers charged 2.5 basis points more when buying dollars forward than when selling them, with the gap rising to 11.8 basis points for maturities under one month. This asymmetry remained after controlling for client-dealer relationships and transaction characteristics, while persistent differences in relative dollar funding conditions across dealers became statistically insignificant after those controls.
2026-09-18Bank of England
Bank of England research finds dealer pricing drives dispersion in synthetic dollar funding costs
Bank of England research finds substantial dealer-level dispersion in synthetic dollar funding prices, with near-identical FX forwards differing by about 7 basis points between the 10th and 90th percentiles. Dealers charged 2.5 basis points more when buying dollars forward than when selling them, rising to 11.8 basis points at maturities under one month. Clientele and dealer pricing power explained more of the variation than underlying funding costs.