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FX Probe Extends To Options: "Oh God, Look What We've Uncovered"

Tyler Durden's picture




 

As an increasing number of FX traders are disappearing from bulge bracket banks (for "entirely unrelated to the FX probe" reasons), the WSJ reports that European and US regulators are expanding the scope of the manipulation probe. In the course of sifting through mountains of documentation, banks have found an array of apparent misconduct, according to people involved with the investigations and now the FX options market has come under scrutiny. "It's the banks saying, 'oh God, look what we've uncovered, there's a whole lot of issues'," a person familiar with the investigation said.

Via WSJ,

A regulatory probe that flamed up in one corner of the vast foreign-exchange market is now engulfing the entire industry.

 

The latest conflagration: concerns about a type of foreign-exchange derivative that is widely used by financial institutions and companies world-wide, according to a person familiar with the matter.

 

...

 

These contracts, which banks often sell to clients, pay out in the event that exchange rates reach certain levels. They are heavily traded: A notional $337 billion changes hands in the overall FX options market each day, according to the Bank for International Settlements.

 

Behind the scenes, though, banks often buy or sell currencies aggressively to prevent those levels from being breached, according to traders and banking executives. That may be to the detriment of clients, who would otherwise potentially receive a payment, these industry officials say, although banks see it as a way to protect their cash. Such tactics are commonplace, traders say.

 

...

 

As part of banks' internal reviews into their foreign-exchange businesses, some recently have found potential problems with trading involving the options, according to the person familiar with the matter.

 

...

 

One former trader at Deutsche Bank in New York was fired after chat room messages showed he joked about his ability to affect the price of a barely-traded currency—the Argentine peso—people familiar with the matter say. The bank has fired three other executives, including at least one in Latin America, in connection to trading practices not related to the London fix, according to a person familiar with the matter.

 

...

 

Authorities are also looking into whether some foreign-exchange bankers inappropriately traded in their personal accounts. This practice is forbidden at some banks, though there is not a blanket ban across the industry. It is frowned upon because of the possibility traders could use privileged information for their own profit.

 

In all, about 20 traders and bankers including some in New York, London and Tokyo have now been suspended or fired since authorities started to investigate the foreign-exchange markets.

As a gentle reminder, here is the original uncovering of at least one of the manipulations:

 

The same pattern -- a sudden surge minutes before 4 p.m. in London on the last trading day of the month, followed by a quick reversal -- occurred 31 percent of the time across 14 currency pairs over two years, according to data compiled by Bloomberg. For the most frequently traded pairs, such as euro-dollar, it happened about half the time, the data show

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Fri, 02/07/2014 - 20:14 | 4413844 frankthomaswhite59
frankthomaswhite59's picture

the lotto is rigged

Fri, 02/07/2014 - 20:18 | 4413867 Long-John-Silver
Long-John-Silver's picture

the lotto is rigged

 

Have any of them not been rigged?

Fri, 02/07/2014 - 20:29 | 4413895 James_Cole
James_Cole's picture

This is why it's so important to deregulate the banks further - all these problems would 'disappear.' Afterall, who's actually affected by rampant currency manipulation? 

Fri, 02/07/2014 - 20:31 | 4413905 kaiserhoff
kaiserhoff's picture

Some days it seems like the market is only there to take your money,

  and other days... wait, what other days?

Fri, 02/07/2014 - 20:49 | 4413963 BurningFuld
BurningFuld's picture

There are actually people out there that still  somehow think these markets are not a totally rigged casino.

Now that is funny!

Fri, 02/07/2014 - 20:49 | 4413971 philipat
philipat's picture

Let's hope that we shortly start to see suspensions, terminations and suicides amongst PM Traders??

Fri, 02/07/2014 - 21:17 | 4414027 slotmouth
slotmouth's picture

All options are rigged no?

Fri, 02/07/2014 - 21:21 | 4414042 CIABS
CIABS's picture

"Authorities are also looking into whether some foreign-exchange bankers inappropriately traded in their personal accounts. This practice is forbidden at some banks, though there is not a blanket ban across the industry. It is frowned upon because of the possibility traders could use privileged information for their own profit."

- WSJ

 

I wish they had explained that in a little more depth.  It doesn't sound good, but I'm not quite sure I understand.

Fri, 02/07/2014 - 22:27 | 4414189 Muppetrage
Muppetrage's picture

That's the JPMorgan rules: it's frowned upon but if you hold up a role of mentos it's all good.

Sat, 02/08/2014 - 08:29 | 4414720 GetZeeGold
GetZeeGold's picture

 

 

I just want to state for the record....I don't own a nail gun.

Fri, 02/07/2014 - 22:39 | 4414210 ebworthen
ebworthen's picture

They have the ability to manipulate currencies and move currency markets so they can place a personal bet based upon the move the bank is going to execute.

Imagine the Croupier on a Roulette table who can place his own bets and knows he is going to hit red or black or even the number based on the magnet activated.

And in our casino markets this is done with every table, wink-and-a-nod; no rules, no regulations, no law - just the appearance of it.

Fri, 02/07/2014 - 23:01 | 4414264 TheFutureReset
TheFutureReset's picture

I think you were missing the sarc tag, no? 

These are unintended consequences of the regulations we have in place. Of course, if you deregulate the banks and give them access to trillions of free dollars with no risk, this is what happens.

If we allow the banks to have dishonest money, how can you expect them to be anything but dishonest? If we allow the government to use dishonest money, how can we expect their regulations to anything but dishonest failures?

It's like giving your keys to a drunk and expecting him not to wreck your car. How about give the keys to a designated driver? It starts with the currency, not the regulations.

[reset button]

 

Sat, 02/08/2014 - 00:01 | 4414387 TheReplacement
TheReplacement's picture

Deregulation would be okay but the rule of law needs to apply.  Stealing is stealing no matter how you do it.  Get rid of the myriads of lawyers who muddy the water and things can be very clear.  They effectively stole from their clients.  Also, when they go belly up, they are done.  No bailouts, just post mortem.

Live free or die.

Sat, 02/08/2014 - 00:43 | 4414465 AGuy
AGuy's picture

"This is why it's so important to deregulate the banks further  all these problems would 'disappear.'"

Its not a matter of regulation but a matter of enforcement and too big to jail. Regulations are use to fry the small fish to let the big whales get away with murder. Big banks and other big corps. lobby for more regulation so they use the long arm of big brother to swash out the competiion. Smaller companies are agile and can turn on a dime, Large corps turn like a super tanker so they need an edge to prevent the small fish from taking away market share. The best option is to increase regulation so that a small company is forced to spend all of their resources complying with the regulations. Big Corps. buy off gov't officials so they aren't audited or bothered by regulations (ie CFTC, SEC, etc).

Consider comparing the Rich to the poor. The Rich have expensive lifestyles and need high margin transactions to support thier living standards. The Poor are willing to work for much lower wages and are much more willing to work harder that lower wage. The Rich use regulation and licensing to lock out the poor so they can't complete. To stay Rich, the rich have to knock out the competition. This is true in business competition too.

 

 

 

Sat, 02/08/2014 - 01:08 | 4414496 James_Cole
James_Cole's picture

The best option is to increase regulation so that a small company is forced to spend all of their resources complying with the regulations. Big Corps. buy off gov't officials so they aren't audited or bothered by regulations (ie CFTC, SEC, etc).


Smart / effective regulation is a hallmark of a well-functioning economy / country. How many major banking meltdowns between 1950 - 1980 in the US? Versus US 1980 - 2010? Regulation works, that's why big business has spent so much time and $ capturing it. 

 

The Poor are willing to work for much lower wages and are much more willing to work harder that lower wage. The Rich use regulation and licensing to lock out the poor so they can't complete. 


No, they use access to capital - the rich are still rich in countries with few regulations. 

Sat, 02/08/2014 - 13:23 | 4415146 AGuy
AGuy's picture

"No, they use access to capital - the rich are still rich in countries with few regulations. "

You don't need loans to get out of poverty. Just hardwork and access to provide services or products without getting blocked by uncessary regulation.  Loans are part of the problem. For instance, student loans that impoverish educated people for very long periods. Loans are the shackles of slavery and proverty, as most poor people have excessive debt levels that prevent them from moving up as they much use their discretionary income to repay back debt instead of using it more productively.

The Rich are very rich in in countries with excessive regulation. There is just fewer of them in over-regulated nations, but they have a much much bigger piece of the wealth! And there are very few nations (if any) that don't have regulations designed to trap the poor from moving out of poverty. I can't think of a nation that has an excessive poor population that doesn't have excessive regulations.

 

 

 

Sat, 02/08/2014 - 13:57 | 4415216 James_Cole
James_Cole's picture

Loans are the shackles of slavery and proverty, as most poor people have excessive debt levels that prevent them from moving up as they much use their discretionary income to repay back debt instead of using it more productively.

Most businesses are run on loans. 

I can't think of a nation that has an excessive poor population that doesn't have excessive regulations.

Um, that would be about 99% of developing nations. Are you going to argue that Afghanistan has 'excessive' regulations? India?

 

I think part of the problem on this thread is people not defining what they mean by regulation. I take this as the general definition in the west:

  1. A process of the promulgation, monitoring, and enforcement of rules, established by primary and/or delegated legislation.
Sat, 02/08/2014 - 20:10 | 4416038 BeanusCountus
BeanusCountus's picture

Didnt give you a down, will let others decide. But a few thoughts.

Most corps do have some loans. However, when corps go down thats it and they go out of existence. And the assets, if any, are bought and a new entity emerges. Just like that. Personal debt is different. The individual goes down in bankruptcy, but he/she doesnt die (with the recent exception of a few bankers). The individual moves forward with consequences for a long time. Not the same as a corp. Crushing for an individual.

You miss the point on regulation. Me? I prefer none. But I accept some (not all, as many clearly act as protection for a special group or two) as at least trying to to accomplish a decent intention of the originator. Author's point is that there is not uniform enforcement. And we see examples of this every day.

Not sure why you seem to want to use a definition to question a poster's statement either pro/con. Could have missed it, but i didnt see anyone referring to something that would fall outside the definition.

Sat, 02/08/2014 - 08:12 | 4414702 Urban Redneck
Urban Redneck's picture

Actually it is CRITICAL to REDUCE the banking REGULATIONS (if you actually want to reign in the industry). The challenge is passing more stringent regulations with less verbal diarrhea.

I admit I never though much of our legal and political and affairs group, because they were a bunch of half-witted assclowns and they certainly were not skilled lawyers, lobbyists, or bankers, and I never though the deserved the share of the CapEx/OpeEx allotments they received.

However, towards the the end of every year there is always "bonus time", and all the division heads gather in a conference room to fight over division of the spoils of war. Our position was always we made the damn money, and we beat the numbers, and we did it with less, so we deserve the biggest bonus... The CEO went out and promised the sky to the street, and we all got slammed with (insert challenge here- GLB, dot-com bust, adverse FED policy, Patriot Act) and despite those obstacles the bank delivered the EPS and balance sheet growth promised, because of skilled execution. To which a half-witted assclown pretending to be lawyer/lobbyist would respond, "and who provided the framework which allowed you to achieve what you achieved?"

Give a banker 100 pages of regulations and he'll be rich, give a banker thousands of pages of regulation and he'll be so wealthy he owns your ass.

Sat, 02/08/2014 - 09:53 | 4414775 Urban Redneck
Urban Redneck's picture

That exchange generally occurred as either the preamble or opening volley in what became skillful execution of interdepartmental strategies, but helping bankers make or keep their bones isn't my aim. You can show the banker the light by hanging him, but never by saying bankers should be hung, and short of tedious and skilled debate, I am left with enlightenment by simple truth and shared experience in a common language. But then again, I cashed out and walked away of my own volition.

Sat, 02/08/2014 - 10:14 | 4414789 Urban Redneck
Urban Redneck's picture

My fear falls more along the lines of the worst of the Godfather Trilogy, which I have come to view as much more of an internal crisis, than a response dictated by externalities. It's easier to alter the course of the ship if you're at the helm, or at least onboard, but the challenge is far bigger than any single ship or small fleet, so it's a false choice. Just as singling out any individual group to bear the bulk of the blame for the collaborative cacophony of corruption is a false solution.

Sat, 02/08/2014 - 14:01 | 4415219 James_Cole
James_Cole's picture

Actually it is CRITICAL to REDUCE the banking REGULATIONS (if you actually want to reign in the industry). The challenge is passing more stringent regulations with less verbal diarrhea.

What you're advocating is more regulation via better (and fewer) laws.

Fri, 02/07/2014 - 20:40 | 4413936 Againstthelie
Againstthelie's picture

Nothing to see here, move on!

Libertarians, Peter Schiff and Doug Casey believe the regulators have too much power and are too restricting to the banks and the state was too powerful. Evil regulators! Evil state! The "market" takes care of everything!

 

Fri, 02/07/2014 - 21:32 | 4414069 Salamanda
Salamanda's picture

"...The "market" takes care of everything!" ... Unless of course, someone is 'taking care of the market' themselves i.e. LIBOR, JP and Meryll's bohemoth mountain of naked PM shorts etc etc. 

This why you need more regulators... not necessarily more regulation. There's difference... but it's easier for the bankers to spin it all into the same context and message, to ensure they get to keep doing what they've been doing and for you and I to never be the wider... just all the poorer for it.

Hang'em high... and soon.


Fri, 02/07/2014 - 21:49 | 4414103 ReactionToClose...
ReactionToClosedMinds's picture

guys....do not want to get into some ideologica p*ssing contest.....but the regulators are part of if not a chunk of, the problem.  Jon Corzine cannot get prosecuted,  Blythe masters gets nominated to an advisory position of the CFTC (reneged next day to outrage).  NYFed runs the Federal Reserve System and who runs the NYFed?

Bank of England clearly fingered for ordering illegal activity all over the board.

We don't need regulations or regulators who are useless.  We need someone to prosecute Jon Corzine

Fri, 02/07/2014 - 21:55 | 4414115 James_Cole
James_Cole's picture

but the regulators are part of if not a chunk of, the problem.  Jon Corzine cannot get prosecuted,  Blythe masters gets nominated to an advisory position of the CFTC (reneged next day to outrage).  

Let me see if I get this straight.. regulations not being enforced is a part of the problem, so is not enforcing regulations similar to not regulating?

Sat, 02/08/2014 - 01:39 | 4414530 ReactionToClose...
ReactionToClosedMinds's picture

you clearly miss my point ... but you want to be proven right even when your logic & argument are circular.

you want regulations.... regulations you say....are you clear ... you want regulations...

.....forget if they achieve nothing, increase cost, empower the largest firms which can only afford the increased overhead versus smaller firms ....no matter ......you want more regulations.  Who cares if the likes of Jon Corzine and so many others are being ignored....but it is more important so you can add thousands of additional pages to the Code of Federal Regulations (CFR) which no one reads but the politcal henchmen who more often than not use them as a basis for eliciting bribes, kick-backs and political contributions.   <<< hence, why you will not address the issue of why Jon Corzine is not being prosecuted....because he knows where all the skeletons are in a certain political party 

I suggest a new regulation:  No former governor & senator can ever be a CEO of a securities firm and they really ought not hypothecate cleints accounts for brilliant sovereign debt trades that just happened to unluckily go against them ---even thought they probably had every piece of inside knowledge that exists.  There...a simple regulation........ NOW GO ENFORCE IT!

Sat, 02/08/2014 - 02:40 | 4414571 James_Cole
James_Cole's picture

Regulations which are enforceable & enforced, if a regulation is not enforced it’s not a regulation it’s really just useless legalese and you end up with a system like kafkas trial. 

Watching steve cohen respond to a simple securities law (a throwback) with nonsensical claims was pretty amusing.

Sat, 02/08/2014 - 00:03 | 4414400 TheReplacement
TheReplacement's picture

How about hang the lawyers.  Most of Washington is lawyers.  Okay good.  Throw out their libraries of rules and regulations.  Apply simple common sense rule of law.  You steal, you go to jail.  You fail, you don't get a bail (in or out).  A really free market does self regulate.  Too bad humans are not capable of both standing together against threats as well as standing alone for their own.  Humans don't seem to deserve a free market.

Fri, 02/07/2014 - 21:48 | 4414099 Crawdaddy
Crawdaddy's picture

"It's the banks saying, 'oh God, look what we've uncovered, there's a whole lot of issues'"

Nah its the story these fuckers are gonna try to sell to Joe Six pack. Crawdaddy Twelve pack has had them figured out for a while. Too bad the six packers outnumber the twelve packers 300MM to one.

Fri, 02/07/2014 - 20:15 | 4413846 nmewn
nmewn's picture

I picked up a barely used nail gun just now on ebay, any takers?

Fri, 02/07/2014 - 20:18 | 4413864 Long-John-Silver
Long-John-Silver's picture

You could put a Mercedes Benz emblem on it and lease it to Bankers.

Fri, 02/07/2014 - 20:21 | 4413877 NoDebt
NoDebt's picture

The nail gun should be the new symbol of our resistance against tyranny.  The Guy Fawkes mask is kinda old hat and it's already been done before.

Fri, 02/07/2014 - 20:31 | 4413906 nmewn
nmewn's picture

I like it...lol.

Yeah, I always thought it was a little weird for some kid wearing a Guy Fawkes to rant & rave for government to steal from the public treasury in order to enrich Solyndra CEO's and give the little bastard his frrrreeeee! shit.

Apparently stoned and slept through his history class ;-)

Fri, 02/07/2014 - 20:33 | 4413920 texas sandman
texas sandman's picture

Long Chicago Pneumatic. 

Fri, 02/07/2014 - 20:36 | 4413927 NoDebt
NoDebt's picture

Paslode.  

See why, below, and in the other thread about the guy who just offed himself with a nail gun (currently the featured story).

 

Fri, 02/07/2014 - 21:37 | 4414080 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

reminds me of the old TV ad for prunes:"Is one enough? Is 3 too many?"

 

do these things have multi-shot mode, or did the guy do the deed with a single shot?

Fri, 02/07/2014 - 22:04 | 4414137 Crawdaddy
Crawdaddy's picture

Most nail guns can have two settings: 1) only fire when you pull the trigger or 2) fire on a "bump". Fire on bump only works after the gun has a chance to recycle. <bang> <press down> <bang> If you don't press down there is no second/third bang.

Sat, 02/08/2014 - 08:29 | 4414718 BidnessMan
BidnessMan's picture

It was a Vince Foster style suicide. Shot himself 8 times in the torso and head. Expect the suicide assistant did the torso shots first just to make it really painful. After the first couple of nails, the guy wanted to be dead.

Sat, 02/08/2014 - 13:22 | 4415140 lasvegaspersona
lasvegaspersona's picture

Chicago Brand (Harbor Freight) are tools for one job only. If you plan to kill yourself more than once buy Makita or Bosch.

Fri, 02/07/2014 - 20:35 | 4413921 NoDebt
NoDebt's picture

There.  I just changed my avatar to a Paslode nail gun, which I am told is a favorite of the hit-man world when they are looking to snuff somebody in such a manner.  (How you guys on this board- and you know who you are- know about such stuff is deeply deeply troubling, but I'll defer to your knowlege in this matter.)

Who's next?

Fri, 02/07/2014 - 21:03 | 4413994 kaiserhoff
kaiserhoff's picture

Good job, No Debt, but the choices are endless.

Someone should go with that diving horse Wild Bill used the other day.  Damn near choked on that one;)

Fri, 02/07/2014 - 20:31 | 4413912 IPA
IPA's picture

Full auto?

Fri, 02/07/2014 - 20:39 | 4413937 NoDebt
NoDebt's picture

With conversion kit.  Per the usual.

Fri, 02/07/2014 - 21:14 | 4414015 Schmuck Raker
Schmuck Raker's picture

Those kits are now illegal in most states.

But on the internet you can find instructions/plans for your 3-D printer.

Fri, 02/07/2014 - 20:31 | 4413914 kaiserhoff
kaiserhoff's picture

What sort of warranty are you offering?

Fri, 02/07/2014 - 20:45 | 4413954 nmewn
nmewn's picture

Complete BitCoin back guarantee if you're not completely satisfied with its patented full auto feature.

Shipping & handling extra ;-)

Fri, 02/07/2014 - 20:48 | 4413959 texas sandman
texas sandman's picture

And be warned....there's a LOT of handling...

Fri, 02/07/2014 - 21:09 | 4414011 nmewn
nmewn's picture

But wait!!!...theres moar!

Order right now and we'll throw in five strips of 16D nails! Thats right, you'll get the barely used (wiped clean of all finger prints & brain matter) pneumatic nail gun, air hose AND five strips of 16D's for all your home projects after a hard day of fleecing the sheeple at the office!

Wait, this is crazy!

Because of the bulk buying power we have and the growing popular demand of these new "black guns" we're gonna throw in a brand new...in the box...air compressor!

You get the barely used nail gun, the hose, the five strips of 16D's AND...the brand new air compressor for only $99.99!

(Shipping & handling extra, offer void in NY CA DC & MA)

Order now!

Fri, 02/07/2014 - 21:24 | 4414049 texas sandman
texas sandman's picture

How much extra for ring shank?  Narcissistic bankers always upgrade.

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