Reuters reported the stay in the case involving the antitrust class action against a dozen FX banks. As we reported in February, the DOJ requested a stay due to grand jury investigations ongoing in criminal cases being brought by the DOJ. The plaintiffs have gone along with the stay, however they have been granted exceptions that should allow them to continue to make their case during this period. These exceptions allow them to use discovery to access trade data (perhaps the most important item in order to estimate damages) and some ability to depose witnesses (although the limitations are unknown).
A hearing is scheduled in the case for March 26.
Promotion of Ethics, Simplicity and Transparency in Finance
Showing posts with label Reuters. Show all posts
Showing posts with label Reuters. Show all posts
Thursday, March 12, 2015
Monday, January 5, 2015
JPMorgan Settles FX Benchmark Manipulation Lawsuit
Reuters reports that JPMorgan settled an antitrust lawsuit which accused 12 banks of rigging the FX markets' benchmark rates. No other bank has commented or settled as of yet, and the terms of the settlement were not disclosed. Two other lawsuits remain.
This follows the fines imposed by certain regulators on several banks late last year on the same matter. Once regulators found wrongdoing, even if only poor oversight of traders, it becomes more difficult for the banks to defend themselves. The lawsuit depended on whether the banks' behavior was uncompetitive in nature. Regulator findings regarding collusive behavior among bank traders on chat room and other electronic media may have increased the pressure on banks for settlements.
It appears reasonable to expect some of the other banks to settle in the near future. Additionally, all of the US and international regulators have not yet weighed in, and criminal charges may be coming as well, although any such charges may be limited to individual bank traders rather than the banks themselves.
This follows the fines imposed by certain regulators on several banks late last year on the same matter. Once regulators found wrongdoing, even if only poor oversight of traders, it becomes more difficult for the banks to defend themselves. The lawsuit depended on whether the banks' behavior was uncompetitive in nature. Regulator findings regarding collusive behavior among bank traders on chat room and other electronic media may have increased the pressure on banks for settlements.
It appears reasonable to expect some of the other banks to settle in the near future. Additionally, all of the US and international regulators have not yet weighed in, and criminal charges may be coming as well, although any such charges may be limited to individual bank traders rather than the banks themselves.
Friday, June 13, 2014
One Estimate of FX Benchmark Fines for Banks - $35 Billion
Reuters discusses the research report issued this week by an independent research firm, Autonomous Research. Led by a former minister in a Labor government and a former head of equity research at Merrill Lynch, the report attempts to determine the size of government fines around the world to be assessed upon money center banks for the FX benchmark rate manipulation scandal.
While they admit that they are speculating, they use the theory that repeated wrong-doing will attract much larger fines and thus use the total $6 billion in fines from LIBOR as a base. Their assumption is that total fines among banks will be a minimum of $12B (but capped for individual banks at a level equal to annual profits) but could rise as high as $35B in total. Individual bank fine estimates in the report are $8B for UBS, $4.4B for Deutsche and $4.3B for Citi.
While we find it difficult to comment on what the fines may ultimately total between all of the regulators involved, a number somewhat higher than twice LIBOR may be more reasonable. In addition, banks will most likely need to acknowledge wrongdoing, rather than being able to deny such as in the past. Some of the reasons we tend toward lower estimates is that regulators will still be able to herald record fines and that the additional sources of fines and litigation costs screaming toward banks' balance sheets and earnings from other scandals (including mortgages, other market manipulations, US sanction/embargo evasion and numerous others) are already going to strain the ability of many banks to meet more stringent capital requirements going forward. The answer will not be known most likely until sometime next year.
While they admit that they are speculating, they use the theory that repeated wrong-doing will attract much larger fines and thus use the total $6 billion in fines from LIBOR as a base. Their assumption is that total fines among banks will be a minimum of $12B (but capped for individual banks at a level equal to annual profits) but could rise as high as $35B in total. Individual bank fine estimates in the report are $8B for UBS, $4.4B for Deutsche and $4.3B for Citi.
While we find it difficult to comment on what the fines may ultimately total between all of the regulators involved, a number somewhat higher than twice LIBOR may be more reasonable. In addition, banks will most likely need to acknowledge wrongdoing, rather than being able to deny such as in the past. Some of the reasons we tend toward lower estimates is that regulators will still be able to herald record fines and that the additional sources of fines and litigation costs screaming toward banks' balance sheets and earnings from other scandals (including mortgages, other market manipulations, US sanction/embargo evasion and numerous others) are already going to strain the ability of many banks to meet more stringent capital requirements going forward. The answer will not be known most likely until sometime next year.
Tuesday, June 3, 2014
UK to Increase FX Oversight
Bloomberg reports that the UK will announce new regulations for the FX market as a response to the stories of WM Reuters benchmark rate manipulation at the London close. Chancellor of the Exchequer Osborne may announce these rules at his annual address to be held next week. While details are slim at this point, it is expected that they may include making the manipulation of benchmarks a crime, as well as mandating additional oversight of bank employees involved in benchmark rate setting, by their employers.
Clearly some change is required following the news reports, suspension of traders by banks and the first hints by some regulators that misconduct has been found in FX. However, maintaining the liquidity of the FX markets should be paramount. The information regarding potential manipulation has already started many market participants to review how they can improve their use of, or whether they should use, FX benchmarks.
Clearly some change is required following the news reports, suspension of traders by banks and the first hints by some regulators that misconduct has been found in FX. However, maintaining the liquidity of the FX markets should be paramount. The information regarding potential manipulation has already started many market participants to review how they can improve their use of, or whether they should use, FX benchmarks.
Monday, April 7, 2014
Who needs Flash Trading when we have the FX London Close?!
The hotly debated, headline story of the moment is whether some HFT (high-frequency trading) firms are front-running all other U.S. equity investors by paying fees to the exchanges. Good question .... but let's look at another topic in the news: allegations of front-running and collusion in the London Close for currency trading in the WM/Reuters index.
Quoting an earlier and detailed Financial Pests account:
Instead of several MILLISECONDS of potential front-running, the London Close provides ONE HOUR of potential front-running!
Focusing on the London Close, what strikes us is that there's an easy answer. First and foremost, it's a risk management issue. Banks and dealers should not "guarantee to trade for [clients] at the London Close rates." It's simply not possible to achieve the last price whereas giving a "guarantee" of last price is a difficult-to-quantify risk exposure. With both this quantification difficulty and the appearance of manipulating markets that arises from trading as much as possible in the final minute, prudent risk management dictates "don't offer the London Close guarantee trade to clients."
As an alternative to banning the London Close trade, permit the pairing of such trades for clients on opposite sides. Prior to close, the client may commit itself to executing a stated maximum notional at the fix price subject only to the dealer finding a client for the other side. If confirmed prior to the market close, this trade execution can be posted to the exchange for all participants to see. If no client materializes for all or part of the stated notional, then the original client order is not completely filled.
Quoting an earlier and detailed Financial Pests account:
"Many banks provide a
service to their customers where they guarantee to trade for them at the London
Close rates. Customers provide the trade amounts to their banks within the one
hour prior to the London Close, also known as “the fix”. Those banks that have agreed to make
transactions for funds at the London Close need to push through the bulk of
their trades during this window where possible to minimize losses from market
movements."
Instead of several MILLISECONDS of potential front-running, the London Close provides ONE HOUR of potential front-running!
Focusing on the London Close, what strikes us is that there's an easy answer. First and foremost, it's a risk management issue. Banks and dealers should not "guarantee to trade for [clients] at the London Close rates." It's simply not possible to achieve the last price whereas giving a "guarantee" of last price is a difficult-to-quantify risk exposure. With both this quantification difficulty and the appearance of manipulating markets that arises from trading as much as possible in the final minute, prudent risk management dictates "don't offer the London Close guarantee trade to clients."
As an alternative to banning the London Close trade, permit the pairing of such trades for clients on opposite sides. Prior to close, the client may commit itself to executing a stated maximum notional at the fix price subject only to the dealer finding a client for the other side. If confirmed prior to the market close, this trade execution can be posted to the exchange for all participants to see. If no client materializes for all or part of the stated notional, then the original client order is not completely filled.
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