While FX misconduct investigations began regarding attempts to rig daily spot fixes, it has broadened to additional areas. Now the Financial Times reports that Barclays is near a settlement of over $100 million with the New York Department of Financial Services (NYDFS) regarding the misuse of the last look feature on its FX trading platform, BARX. Last look gives a bank the ability to quickly back out of a trade if there is a significant spot move against them. Those trading on a last look platform would expect to see tighter spreads in exchange for the proper usage of the last look provision.
The FT also reports on several FX investigations into Deutsche. These include the NYSDFS looking into Deutsche's trading platform, Autobahn, a report that there is evidence the bank intentionally set up algorithms to rig the currency markets,and that NYDFS, the Justice Department and other federal agencies have evidence that the bank profited by front running client FX orders. The new CEO at Deutsche may be more willing to try to settle these FX, and other investigations of past misconduct, quickly so that they can concentrate on the changing banking environment.
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Showing posts with label front running. Show all posts
Showing posts with label front running. Show all posts
Wednesday, November 18, 2015
Tuesday, October 6, 2015
Investigations of Electronic FX Trading Continue
Reuters reports that the New York Department of Financial Services (NYDFS) investigation of several money center banks for FX rate manipulation on electronic trading platforms is continuing. They report that NYDFS has interviewed dozens of traders and executives at Barclay's, Deutche Bank and Credit Suisse among other banks (NYDFS has its strongest remit with foreign banks) over the past several months. Subpoenas have also been sent to BNP, Goldman Sachs and Societe Generale according to Reuters sources.
NYDFS has already been known to be investigating FX algorithms on these platforms at the banks to determine if there is an attempt by the banks to advantage themselves at their clients' expense during the time between a rate being posted and then being accepted by a client. The concern is that this period may be used to front run client orders or otherwise manipulate FX rates. Earlier bank settlements with regulators covered spot market trading, but NYDFS agreements particularly, did not cover electronic trading. The Department of justice is also investigating FX electronic trading.
No information is available on how these investigations will play out against the various banks involved. The fact that they continue and appear to have widened from initial reports limited to Barclay's and Deutche, may indicate that regulators have found potential issues worthy of investigation, but do not provide clues as to the outcome.
NYDFS has already been known to be investigating FX algorithms on these platforms at the banks to determine if there is an attempt by the banks to advantage themselves at their clients' expense during the time between a rate being posted and then being accepted by a client. The concern is that this period may be used to front run client orders or otherwise manipulate FX rates. Earlier bank settlements with regulators covered spot market trading, but NYDFS agreements particularly, did not cover electronic trading. The Department of justice is also investigating FX electronic trading.
No information is available on how these investigations will play out against the various banks involved. The fact that they continue and appear to have widened from initial reports limited to Barclay's and Deutche, may indicate that regulators have found potential issues worthy of investigation, but do not provide clues as to the outcome.
Monday, September 14, 2015
FX Scandal Not Blowing Away
First of all, the rest of the world is looking at the US class action suit in which over $2 billion in settlements have already been made by 9 large banks, and lawyers and investors are planning additional suits in several countries. A $1 billion suit has just been filed in Canada relating to benchmark currency fixes.
Secondly, a Citi FX trader who had been dismissed in the UK relating to his sharing of client information with FX traders from other banks on chat rooms, is fighting his dismissal. He is claiming that it was a market practice at the time to share such information, especially regarding the trading of central banks. He mentions one M&A deal in which Citi front run the client's trade and made a profit of $35 million. He states that the very top Citi FX management actually had a hand in this deal.
There are other FX traders who were dismissed relating to similar charges who are also planning on disputing their firings.
Secondly, a Citi FX trader who had been dismissed in the UK relating to his sharing of client information with FX traders from other banks on chat rooms, is fighting his dismissal. He is claiming that it was a market practice at the time to share such information, especially regarding the trading of central banks. He mentions one M&A deal in which Citi front run the client's trade and made a profit of $35 million. He states that the very top Citi FX management actually had a hand in this deal.
There are other FX traders who were dismissed relating to similar charges who are also planning on disputing their firings.
Thursday, May 1, 2014
Clients will Need to Pay for Trading at FX Benchmark Rates
We have said in previous posts that trading with a bank for a fix later in the day, without paying the bank for the service (most fix trades are executed at the midpoint, avoiding even the usual bid offer spread paid for an immediate trade), is the source of much of the trouble with fixes. Clients wanted it and banks accepted it.
This article in FX Week (subscription) describes the problem that the banks have with these trades. Trading before or during the fix can bring accusations of front running or manipulation, and trading after the fix risks incurring losses, which banks have been particularly unwilling to risk since the financial crisis. Based upon the allegations in lawsuits and the regulatory and bank investigations underway, many suspect that some bank traders may have found ways to make profits on such trades anyway, including collusion among the banks.
For those who wish to continue fix trading, they may ultimately need to be willing to pay a bank to take on this risk or manage the risk around the fix themselves, either utilizing algorithms or traders with tight risk parameters. Managing the risk by the firm involves staffing/trading costs as well as the cost of variances between realized rates and the fix. At the moment there is no indication that banks are considering charging for fix trades, but with continuing compression in bank spreads on non-fix trades, eventually this may be part of the solution.
This article in FX Week (subscription) describes the problem that the banks have with these trades. Trading before or during the fix can bring accusations of front running or manipulation, and trading after the fix risks incurring losses, which banks have been particularly unwilling to risk since the financial crisis. Based upon the allegations in lawsuits and the regulatory and bank investigations underway, many suspect that some bank traders may have found ways to make profits on such trades anyway, including collusion among the banks.
For those who wish to continue fix trading, they may ultimately need to be willing to pay a bank to take on this risk or manage the risk around the fix themselves, either utilizing algorithms or traders with tight risk parameters. Managing the risk by the firm involves staffing/trading costs as well as the cost of variances between realized rates and the fix. At the moment there is no indication that banks are considering charging for fix trades, but with continuing compression in bank spreads on non-fix trades, eventually this may be part of the solution.
Tuesday, April 29, 2014
Bloomberg: Traders Join Exodus as Forex Probes Add Pressure on Costs
Bloomberg reports that more than 30 traders from 11 firms have been fired, suspended, taken leaves of absence or retired since October of last year when government probes of potential forex manipulation started picking up. The worst hit banks, according to Bloomberg, are UBS and Barclays. Supposedly some of the departures are due to personal reasons. Compared to the Libor scandal, the forex scandal has played out quite differently. Fires and suspensions are occurring before any settlements have been reached, thus leaving out a great amount of detail as to what these banks have uncovered that led to the departures. The media is not reporting any rumored settlements either, so it looks like we will have to wait a while longer.
Tuesday, March 11, 2014
Latest Allegation: Lloyds FX Trader Provides Tip to Client to Harm... Lloyds
The allegations in this Bloomberg article reach new lows for fx traders. The story is that Lloyds had to sell a large amount of sterling for their own account. A trader notified a favored client beforehand so that the client could make money "front running" Lloyds' order. Not that allegations of collusion against clients' interests are acceptable, but the possibility that fx traders would harm their employers for self-enrichment (the article refers to getting future business from clients, learning about large trades in the future and maintaining relationships with other traders in the tight-knit trader community) raises the question of who was really running the trading desks - the traders or the banks?
Alleged activities in front of large orders, such as traders putting trades through their own accounts, notifying favored clients and traders at other banks so that those parties can front run the orders, if found to be true, may be a defense, albeit a weak one, for any banks found guilty of wrongdoing. Any bank claims of being unaware of improper activity may now seem a bit more plausible.
Alleged activities in front of large orders, such as traders putting trades through their own accounts, notifying favored clients and traders at other banks so that those parties can front run the orders, if found to be true, may be a defense, albeit a weak one, for any banks found guilty of wrongdoing. Any bank claims of being unaware of improper activity may now seem a bit more plausible.
Wednesday, January 15, 2014
Reuters reports FBI suspects front running of Fannie, Freddie in swapsmarket
Yet another investigation into potential wrongdoing in the derivatives market.
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