Window for London FX 'fixing' to widen after trading row

* State Street unit WM announces move in memo to banks

* Implements global regulator FSB's reform recommendations

* Trading could become exchange-based: head of industry body (Recasts with comment from industry body, more context)

By Patrick Graham

LONDON, Nov 17 (Reuters) - London's benchmark foreign exchange "fixings" will move to a five-minute calculation window, from one minute currently, as of 2200 GMT on Sunday, Dec. 14, the WM Company said in a memo sent to banks on Monday.

The move by WM, a unit of State Street Corp, follows the levying of the first fines on banks in a row over alleged manipulation of foreign exchange markets and the fixings, used to set reference values for thousands of contracts worldwide.

After a torrid week for the biggest and least regulated of the world's major financial markets, worth more than $5 trillion a day, the head of the industry body ACI Financial Markets also gave a nod towards the potential for moving more trading onto regulated exchanges.

The widening of the window is the first clear sign that recommendations made in September by the global regulators of the Financial Stability Board for changes to the fixings are being implemented.

Other proposals, agreed after consultations with banks, asset managers and other stakeholders, include changes to trading floors that will keep client orders to be executed at the fixing rate separate from spot trading desks.

A number of senior bankers have told Reuters lenders are still looking at how to implement those proposals and that they may yet lead smaller banks to cease executing the fixing orders at the centre of the year-long row.

The London or "WM/Reuters" fix relates to several exchange rates and is compiled using data on actual transactions from trading systems like those run by Thomson Reuters and ICAP (LSE: IAP.L - news) -owned EBS.

The rates for the fixings, at the centre of a global investigation into alleged market manipulation that saw six major banks fined $4.3 billion last week, are calculated by WM.

Thomson Reuters is the parent company of Reuters News, which is not involved in the process.

The memo also said Thomson Reuters Matching trade and order data would be added into the calculation for the euro, yen, Swiss franc and rouble.

VOICE OVER?

A year into a wide-ranging probe into charges that banks routinely fleeced clients over currencies, industry observers and politicians were frustrated at last week's deal, which they said showed the affair will end just with fines rather than any reform of what they say is the Wild West of financial markets.

Far from chastening the world's biggest currency trading firms, they say the multi-billion dollar fines levied by regulators on Wednesday are more likely to draw a line under the affair and gradually allow a return to business as usual.

But there are signs of change. Marshall Bailey, the head of the ACI Financial Market Association, which groups currency traders and the senior officials at banks who run electronic trading, has been a firm opponent of any shift to greater regulation by putting trading on exchanges.

"The ACI policy is that markets trade very effectively at the moment as they are, and have a number of potential avenues for successful trading of FX. One of them is on exchanges," he told Reuters on Monday.

"This might be expanded in the coming years to make it more effective, and if clients see the benefits of it, they will migrate in that direction," he added, stressing that this was still not the body's "preferred route". (Additional reporting by Clare Hutchison; editing by Keith Weir/Ruth Pitchford)