A Peek Inside The Secret World Of Currency Manipulation

Tyler Durden's picture

We already know that Wall Street manipulates everything (not conspiracy theory, but now open conspiracy fact), but Reuters' Jamie McGeever exposes the ugly chatroom realities of just how FX traders shared orders, split trades, front-ran clients in million of electronic messages providing fresh evidence of collusion among top currency traders. Traders pooled order details and discussed the 'spread' they would offer, "I don't like this guy...I'd show 6 to good guys but guys like that I'm going to show 7 in future," the trader added. Unrigged?

 

To summarize just how, who and where this manipulation takes places is the following series of charts from Bloomberg demonstrating Wall Street at its best - breaking the rules and making a killing.

Foreign Exchanges

Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.

 

Energy Trading

Banks have been accused of manipulating energy markets in California and other states.

 

Libor

Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.

 

Mortgages

Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.

 

* * *

And in the latest news on manipulation, according to the FT, "The UK’s financial regulator is probing the use of private accounts by foreign exchange traders amid allegations they traded their own money ahead of clients orders, in a serious twist in the global probe into possible currency market manipulation. The Financial Conduct Authority has asked several banks to investigate whether traders used undeclared personal accounts, two people close to the situation said.

Guess what they found...

As Reuters explains, British investigators are examining millions of electronic messages which include fresh evidence of possible collusion by a small group of top currency traders, sources say.

The investigators have been handed chatroom transcripts showing senior dealers at the big banks that dominate the largely unregulated foreign exchange market routinely sharing intelligence on orders they were about to place for clients.

 

The traders pooled order details from hedge funds and discussed the prices they should be offered, said the sources, who have seen some of the messages at the centre of an international probe into alleged collusion in world foreign exchange markets.

 

In a chatroom transcript from April 2012, two traders discussed the "spread" that should be given to a certain hedge fund. The fund wanted a spread of five basis points on its foreign exchange order, but the first trader offered a spread of six.

A wider spread is effectively a less advantageous price to the customer, in this case the hedge fund, and a more attractive price to the market-making bank.

"I don't like this guy, as he's asking two or three banks at the same time," said the second trader in the chat, according to a person familiar with the contents of the transcript.

 

"I'd show 6 to good guys but guys like that I'm going to show 7 in future," the trader added.

 

The first trader then decided to quote a spread of 7 basis points, said the person familiar with the transcript.   

Of course, a swarm of senior FX traders have stepped down over the last few months...

Some 40 FX employees at many of the world's biggest banks have been placed on leave, suspended or fired as part of the global investigation - including one employee at the Bank of England - although no individual or institution has been accused of any wrongdoing.

...but regulators decline to comment on the ongoing investigation (which appears 100% cut and dried)...

Any evidence of collusion would be another blow to some of the world's largest banks, already hit by big fines and new regulations in the wake of world financial meltdown five years ago. The latest estimates by banking sector analysts of likely fines for such anti-competitive practices in the currency market now far exceed the $6 billion levied to date in the Libor interest rate rigging scandal – some by up to six times.

 

The chatroom transcripts from 2011 and 2012, which are in the hands of the FCA, are between three senior traders at three of the world's largest FX banks. All three traders have since been sanctioned to one extent or another by their banks, sources have told Reuters.

 

Between them the three banks account for around 30 percent of the $5.3 trillion global daily average turnover, according to Euromoney magazine.

So they represent at least 30% of the market - which given the momentum in FX means all of the market when they want to move it... Still believe in unrigged markets (and unicorns)?