Settlements Approaching on FX Benchmark Rate Investigations

Reports are becoming more frequent that a settlement is in the works between the UK Financial Conduct Authority and money center banks regarding the FX benchmark pricing scandal.  These discussions are supposed to involve a total fine of about $3 billion (at the low end of expectations) and importantly, only charge the banks with maintaining insufficient compliance procedures to catch individual traders.  It is the traders who would be seen as the true purveyors of misconduct.

UBS today reported that it is in talks with an unnamed regulator that could result in material fines for not having sufficient controls to prevent misconduct of their employees.

There is a belief that the regulators of many countries are working multilaterly, even if not exactly together.  If they all pursue a line of reasoning as discussed above, this would indicate a much lighter hit for the banks.  The fines may be less than assumed, and importantly, the banks may not have to plead guilty to criminal behavior.  With settlement talks ongoing, some are now expecting settlements before year end.

From AVC Blog: The Bitcoin Hype Cycle

Fred Wilson of AVC blog has a great piece about the Gartner Hype Cycle, which lines up rather nicely with the price history of Bitcoins.  Bitcoin enthusiasts should definitely check it out. 

Trade stocks with zero commission

Great article over at techcrunch about Robinhood the stock trading app that lets users trade stock for $0.  They're only in friends and family beta testing right now but have raised $13mm in Series A funding. The idea is amazing and has the potential to disrupt current trading system while bringing in more retail money.  Wonder though how the business itself plans to make money.  Ads?

No More Junk Banks !!

Now Available:  Banking on Failure – Fixing the Fiasco of Junk Banks, Government Bailouts, and Fiat Money !  The authors propose simple but drastic changes to banking and bank regulation.  Banking on Failure explains how banks will be safer and have far less impact on economies and governments if and when they do fail.  No more bailouts!

I became fascinated with the challenge of “fixing banking” while spending a year as a lead investigator for the Bankruptcy Court to determine why Lehman Brothers failed in September 2008.  With additional consulting experience and independent study, I believe Laurel and I have found a comprehensive and pragmatic solution.  But it’s a big change!

Please see this link for the (short) Introduction.  I paste the Table of Contents below.  The Kindle E-Book version is best since it has more than 200 live links to news articles and other references that support our discussions.

Table of Contents:

1.    Introduction

2.   Business Failure

3.   Banking Business

4.   Banks Versus Non-Banks

5.    Analysis of Banking Risk

6.   History of Banking

7.   History of Money and Gold

8.   Central Banks

9.    Regulation of Banks

10.   Money, Lending, and Inflation

11.    Junk Banks

12.    Fixing Banking

13.    Summary

Regulators/Prosecutors Moving Forward in UK and US FX Benchmark Investigations

Reuters sources  indicate that in the UK there is a push being made by the banks to come to a joint settlement with the FCA regarding the benchmark FX investigation.  A joint settlement reduces the reputational risk for each bank and would allow for the FCA to wrap up the investigation more quickly than pursuing each bank individually.  Indications are that such a settlement, if it occurs, could come as early as year end.

In the US there is a report that the DOJ has informants still working on the fx desks at several US banks. The DOJ is looking to charge individuals with crimes as an additional deterrent to the fines on the banks.  Perhaps it may also avoid a repeat of the criticism of the regulators following the LIBOR investigation that fines alone are merely a cost of doing business for the banks.

Report CFTC Finds Criminal Behavior in ISDAFIX Investigation

As we reported last week, the first lawsuit was filed in the ISDAFIX controversy.  This week Bloomberg states that the CFTC, which is limited to bringing civil cases, reported evidence of criminal behavior to the DOJ. The DOJ can then determine whether to pursue a criminal investigation.  Bloomberg bases the article on a person familiar with this matter.

The report alleges that ICAP, a broker with a central role in setting ISDAFIX through January 2014, accepted large numbers of trades from banks at the close, attempting to influence the fix.  This "banging the close" is similarly charged in FX benchmark cases.  In addition to these actual trades, banks also submitted rate quotes as part of the process of setting ISDAFIX.  The lawsuit last week alleged that identical quotes were submitted by multiple banks on most days, down to the thousandth of a basis point.

The ISDAFIX cases may have a better chance of reaching antitrust status, unlike the LIBOR case, due to the actual trades involved and the lack of reasons other than profit for banks entering into these ISDAFIX trades.

Another Shoe Drops: Pension Sues Banks Alleging Manipulation of ISDAfix

Hot off the presses, Bloomberg reports that the Alaska Electrical Pension Fund yesterday filed suit against the banks responsible for contributing to the ISDAfix rates. Those of you who want more about this brewing controversy can read my report here.  This comes on the heels of lawsuits alleging manipulation in gold, FX rates and LIBOR.  I'm sure there will be more to come as additional information comes to light.