WM/Reuters Busted In Latest Market Rigging And Collusion Scandal: Foreign Exchange

Tyler Durden's picture

First it was the conspiracy theory that Li(e)bor traders were manipulating the entire rates market which a year ago became conspiracy fact. Then it was commodities with an emphasis on the energy market (but not gold - gold is never, ever manipulated) with even such luminaries as JPMorgan's Blythe Masters, subsequently implicated. And moments ago, via Bloomberg, to absolutely nobody's surprise, we learn that that final market which so far had not been exposed as the "wild west" of manipulators, the FX market, is part of the conspiracy "fact" too. According to Bloomberg, "employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years."

The specifics should be well-known to those who have followed all other "fixing" scandals to date, because for the most part they are identical, just cover a different asset class:

The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, the two traders said. The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, according to a person briefed on the matter.


“The FX market is like the Wild West,” said James McGeehan, who spent 12 years at banks before co-founding Framingham, Massachusetts-based FX Transparency LLC, which advises companies on foreign-exchange trading, in 2009. “It’s buyer beware.”


The $4.7-trillion-a-day currency market, the biggest in the financial system, is one of the least regulated.

Now we know why, and it's not only because this is the primary venue where the central banks of the world try to outsmart and outtrade each other in the New Normal.

How is WM/Reuters implicated?

The WM/Reuters rates are used by fund managers to compute the day-to-day value of their holdings and by index providers such as FTSE Group and MSCI Inc. that track stocks and bonds in multiple countries. While the rates aren’t followed by most investors, even small movements can affect the value of what Morningstar Inc. (MORN) estimates is $3.6 trillion in funds including pension and savings accounts that track global indexes.


One of Europe’s largest money managers has complained about possible manipulation to British regulators within the past 12 months, according to a person with knowledge of the matter who asked that neither he nor the firm be identified because he wasn’t authorized to speak publicly.


The WM/Reuters rates data are collected and distributed by World Markets Co., a unit of Boston-based State Street Corp., and Thomson Reuters Corp.

Reading through the article one can't help but feel a modest smugness by Bloomberg which in the past month had been repeatedly slighted by Reuters due to the infamous Bloomberg "surveillance" scandal, which promptly faded following the news that the government was doing just that to, well, everyone.

Bloomberg LP, the parent company of Bloomberg News, competes with New York-based Thomson Reuters in providing news and information, as well as currency-trading systems and pricing data. Bloomberg LP also distributes the WM/Reuters rates on Bloomberg terminals.

As for the details, think Libor setting and fixing. Only in FX:

Introduced in 1994, the WM/Reuters rates provide standardized benchmarks allowing fund managers to value holdings and assess performance. The rates also are used in forwards and other contracts that require an exchange rate at settlement.


“The price mechanism is the anchor of our entire economic system,” said Tom Kirchmaier, a fellow in the financial-markets group at the London School of Economics. “Any rigging of the price mechanism leads to a misallocation of capital and is extremely costly to society.”


The rates are published hourly for 160 currencies and half-hourly for 21 of them. For the 21 -- major currencies from the British pound to the South African rand -- the benchmarks are the median of all trades in a minute-long period starting 30 seconds before the beginning of each half-hour.


If there aren’t enough transactions between a pair of currencies during the reference period, the rate is based on the median of traders’ orders, which are offers to sell or bids to buy. Rates for the other, less-widely traded currencies are calculated using quotes during a two-minute window.

And since it is a very rapid and largely liquid market, everyone waits until the last minute:

As market-makers, banks execute orders to buy and sell for clients as well as trade on their own accounts.


Companies and asset managers typically ask banks to buy or sell currencies at a specified WM/Reuters fix later in the day, most commonly the 4 p.m. London close. That arrangement is open to abuse, as it gives traders a window in which they can adjust their own positions and try to move the benchmark to boost their profit, three of the dealers said.


Customers often wait until the hour before the 4 p.m. close to place large orders to minimize the opportunity for banks to trade against them, one investor and a trader said.


Index funds, which track baskets of securities from around the world each day, are particularly vulnerable because they need to place hundreds of foreign-exchange trades with banks using WM/Reuters rates, according to two money managers. The funds buy securities to match their holdings to the indexes they are required to track. The issue is most acute at the end of the month, when index-tracker funds invest new money from clients.

Specifically, the "manipulated" trades occur using such tried and true methods as banging the close. End result: massive profits on a daily basis for dealers.

By concentrating orders in the moments before and during the 60-second window, traders can push the rate up or down, a process known as “banging the close,” four dealers said.


Three said that when they received a large order they would adjust their own positions knowing that their client’s trade could move the market. If they didn’t do so, they said, they risked losing money for their banks.


One trader with more than a decade of experience said that if he received an order at 3:30 p.m. to sell 1 billion euros ($1.3 billion) in exchange for Swiss francs at the 4 p.m. fix, he would have two objectives: to sell his own euros at the highest price and also to move the rate lower so that at 4 p.m. he could buy the currency from his client at a lower price.


He would profit from the difference between the reference rate and the higher price at which he sold his own euros, he said. A move in the benchmark of 2 basis points, or 0.02 percent, would be worth 200,000 francs ($216,000), he said.

It's a small, manipulative club, and you're not in it. Also, the club meets every day for about 60 seconds and then promptly disperses.

To maximize profit, dealers would buy or sell client orders in installments during the 60-second window to exert the most pressure possible on the published rate, three traders said. Because the benchmark is based on the median of transactions during the period, placing a number of smaller trades could have a greater impact than one big deal, one dealer said.


Traders would share details of orders with brokers and counterparts at banks through instant messages to align their strategies, two of them said. They also would seek to glean information about impending trades to improve their chances of getting the desired move in the benchmark, they said.


The tactic is most effective with less-widely traded currencies, the traders said. It could still backfire if another dealer with a larger position bets in the other direction or if market-moving news breaks during the 60-second window, one of them said

So there you have it - the next Li(e)bor scandal:

Bloomberg News contacted foreign-exchange traders and investors after some market participants expressed concern that the WM/Reuters rates were vulnerable to manipulation. The traders and investors said they expected their market would be the next to be scrutinized.

And the punchline: it is all self-policed. Brilliant - a bunch of sociopaths promising to do the "right thing"

While U.K. regulators require dealers to act with integrity and avoid conflicts, there are no specific rules or agencies governing spot foreign-exchange trading in Britain or the U.S. That may make it harder to bring prosecutions for market abuse, according to Srivastava, the Baker & McKenzie partner.


Spot foreign-exchange transactions aren’t considered financial instruments in the same way as stocks and bonds. They fall outside the European Union’s Markets in Financial Instruments Directive, or Mifid, which requires dealers to take all reasonable steps to ensure the best possible results for their clients. They’re also exempt from the Dodd-Frank Act, which seeks to regulate over-the-counter derivatives in the U.S.


“Just because Mifid doesn’t apply, the spot FX market shouldn’t be a free-for-all for banks,” said Ash Saluja, a partner at CMS Cameron McKenna LLP in London. “Whenever you have a client relationship, there is a duty there.”


Sixteen of the largest banks, including Barclays, JPMorgan Chase & Co. (JPM) and Deutsche Bank (DBK), signed a voluntary code of conduct for foreign-exchange and money-market dealers in 2001 that was later included as an annex to guidelines issued by the Bank of England in November 2011.


The BOE’s Non-Investment Products Code, which some banks use in contracts with clients, states “caution should be taken so that customers’ interests are not exploited when financial intermediaries trade for their own accounts.” It also says that “manipulative practices by banks with each other or with clients constitute unacceptable trading behavior.”


“The thing about the code is it is a voluntary code,” the lawyer said. “It may be that compliance with that has almost been seen as optional.”

Wait, you mean bankers signed a voluntary code of conduct promising not to steal and cheat their clients and... proceeded to steal and cheat? Unpossible: bankers would never do that.

But since the FX market is indeed huge, and since this is like the Office Space strategy of taking tiny bits of "other people's money", even as everyone in the circle was making illegal profits, and since everyone's interests were aligned, here once again we get the perfect example of what everyone previously said could not happen: a massive manipulative conspiracy which is "impossible" as someone is always expected to talk. Guess what - they never talk if they have enough incentives not to.

But the real bottom line is if any idiot is still wondering why there will never be a great rotation out of bonds into stocks, FX, commodities, or whatever, it is because by now everyone knows that the market is one giant rigged and manipulated casino. And it is much more enjoyable to blow your money away in Vegas that alongside the E*trade baby. Period.

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pauhana's picture

Ah, the tide has gone out and absolutely everyone is naked.

SMG's picture

Corruption in the markets? I'm shocked, shocked, I say.

Ahmeexnal's picture

time to hang them....and their children....and their grandchildren

Zer0head's picture

"According to Bloomberg..."



hooligan2009's picture

or according to Bloomberg dealer chat and messages read by bloomberg..and the NSA...anyway

francis_sawyer's picture



Don't fret... Just console yourself with the idea that it's NOT 'this' corruption... It's 'that' corruption...

Pladizow's picture

"There are no markets anymore, just interventions." - ????

insanelysane's picture

Every time trading is halted, there is the thought in my mind that the order of trades are "resequenced" to the benefit of the insiders and their bestest clients.

hooligan2009's picture

and a fat fnger in the NSA algo

philipat's picture

"Because the practise is controversial". Umm, I think ILLEGAL is a more appropriate word to use.

A is A's picture

Ben Bernanke is yelling, "Fucking assholes! That's my job!!!"

UnpatrioticHoarder's picture

Gold and silver are traded on forex exchanges along with other paper instruments, so this scandal may have PM implications.

malikai's picture

I don't get it. Bangin the close has been around as long as daily quotes.

How is this considered manipulation? Collusion, maybe, but even that's not illegal.

Groundhog Day's picture

This is a real fucking surprise.  The ONLY thing that would surprise me at this point is an honest market which is NOT rigged

max2205's picture

Is this whistle blower in HK too?

Dead Canary's picture

The gold market isn't rigged. Heard it on the TV.

optimator's picture

Banks signing Code of Conduct?  Too funny.

EscapeKey's picture

Not really. Their idea of signing a 'code of conduct' is to suggest how everyone else should behave.

francis_sawyer's picture

Reuters?... Rothschild owned Reuters?...


Get right out of town!

nmewn's picture

I thought frontrunning was only reserved for politicians & their cronies.

buzzsaw99's picture

prop trading = punking fx muppets

NoDebt's picture

England/London?  AGAIN?

They make Bernie Madoff look like a saint over there.  Why don't WE have the best market-riggers in the world?  We're slacking, man.  Just slacking. 

hooligan2009's picture

heh..in London's defence..almost nobody working on the dealing desks in London is actually English..and only 4 out of 32 banks that set libor are british.

London is an intenrational financial center, not an english one.

fonzannoon's picture

Nodebt being in the business I know you understand that we have entered the "balls in your face phase". This is sometimes knows as the "yeah the whole thing is rigged, SO WHAT, WHADDAYA GONNA DO ABOUT" phase.

hooligan2009's picture

sigh..i've been in the biz for almost 40 years ..it is not called a "fix" for nothing.

ever wonder how nobody is talking about libor fixings affacting forward points on fx deals? trillion a day turnover..half in the forward swaps..real money not 11 am LIBOR crap.

wonder if anyne will notice that shares are the same...and options...and futures...


JohnG's picture



How may heart attacks have you survived?

Inquiring minds want to know.

Just one for me....so far.

hooligan2009's picture

heh, none yet, but thanks for the good wishes!

secret to not getting ill..all the markets a game and we are merely players..(with apologies to billy wigglestick)

i smoke and drink too, but i acknowledge that i am not Keith Richard

Divine Wind's picture



The Rothschild's must ALWAYS get their cut, or else.


Bitcoin Among Virtual Currencies Targeted in US Crackdown on Tax Evasion


Kirk2NCC1701's picture

Tax "evasion"?  How?  With all the BTC I can't buy w/o doing amazing PC gymnastics?  Or, how about if you live in a salestax-free State?

Or does the CIA set up banks like Liberty for their own cleaning services, then use it to burn all cyber-currencies?  What will they think of next?

hooligan2009's picture

yanno..i had forgotten all about bitcoin for three weeks!

still its at 108.60, so those two long legged guys with their 11 million are still billionaires..in their own country anyway

Kirk2NCC1701's picture

I got Scandal Shock.  Can't absorb any moar scandals & scams.

I wonder what's on Fox or EPSN...  Sally, where's my beer!?

LeisureSmith's picture

Scandal fatigue. Wont anyone throw a shoe in someones face at least?

insanelysane's picture

ESPN is running a piece on the baseball PED scandals.

q99x2's picture

Something different happens when the biosystem runs out of food.

Yen Cross's picture

     This shite is endless! We need a "PULSAR" directed at Earth, to scorch all the f**king thieving RATS!

   * of course they wait to drop the tape bomb during the Asian trading session

tip e. canoe's picture

Brilliant - a bunch of sociopaths promising to do the "right thing"

pretty much says it all right there

spanish inquisition's picture

I really would like to see someone other than the whistleblowers going to jail.

Conman's picture

Wow and here i thought fraud which is LAW>DUDE CODE . Pass out the wrist slaps and lets jsut move it along. nothing to see here.

williambanzai7's picture

BTW, has any US Bank yet been nailed for its participation in the LieBor scandal?

Are we expected to believe that the US Banks stood by and allowed their British counterparts to Bukkake them in the LieBor space?

Or shall we assume that we are getting Holdered?

You all know the answer...

But what is more interesting is to briefly ponder is why the Europeans don't complain that their Banks are hammered by the US regulators instead of the Americans, which has now resulted in a global competitive imbalance.

It hasn't occurred to them that the US banks are essentially being coddled and subsidized by the US government. If this were solar panels or steel tubes what would be the result?

hooligan2009's picture



the usd and the euro are the two biggest currencies referenced by trade and LIBOR. quite a few banks have been dropped since the GFC

here is the us panel

  • Bank of America
  • Bank of Tokyo-Mitsubishi UFJ Ltd
  • Barclays Bank plc
  • BNP Paribas
  • Citibank NA
  • Credit Agricole CIB
  • Credit Suisse
  • Deutsche Bank AG
  • HSBC
  • JP Morgan Chase
  • Lloyds Banking Group
  • Rabobank
  • Royal Bank of Canada
  • Société Générale
  • Sumitomo Mitsui Banking Corporation
  • The Norinchukin Bank
  • The Royal Bank of Scotland Group
  • UBS AG

from June 2006


Bank of America 
Barclays Bank plc 
Citibank NA 
Credit Suisse 
Deutsche Bank AG 
JP Morgan Chase 
Lloyds TSB Bank plc 
Royal Bank of Canada 
The Bank of Tokyo-Mitsubishi Ltd 
The Norinchukin Bank 
The Royal Bank of Scotland Group 
West LB AG

Kokulakai's picture

Hang 'em all, let God sort 'em out.

WAMO556's picture

They say that the got together via "instant message"...

If my memory serves me right, there are a number of INSTANT MESSEGER COMPANIES that are part of PRISM.

Did any body catch this?

Me wonders what else the spies have been doing as well.

CustomersMan's picture


We hear the propaganda that "if you've got nothing to hide then why worry about eavesdropping" , meanwhile they are using the systems to rob us blind in a million ways.


Frustrating is not the word I'm looking for.

CustomersMan's picture

Note From The Past:

Harry Markopolis, Boston, the guy who tried to stop Madoff before he looted the 65 Billion, wrote about banks stealing billions in client currency "pegs" on their accounts, at least a year ago and filed some class actions I believe.


Wonder what happened there-after?