Why Is a Volume-Weighted Average Price (VWAP) Often Used in Reference Rates?

VWAP is used because it gives greater importance to prices where more actual trading volume occurred. This makes the resulting reference rate a more accurate reflection of the true market price and less susceptible to manipulation by small, non-representative trades.

By factoring in volume, the index better captures the price at which the majority of market activity took place during the settlement window.