4pm Fix


Promises, promises! We’ve heard it all before. ‘We’re gonna get you, guys’. We know the song it’s just the words that get changed from time to time, but anyone can hum along to it these days. The bankers, thosebanksters are gonna get their comeuppance. Trouble is: they never do. It’s just getting boring now. George Osborne, the UK Chancellor of the Exchequer will today use his Mansion House Speech to tell the world that currency rigging is unacceptable abuse and will be punished. Is he God? Does he really think the bankers will go to hell? Punishment!?

It’s been going on for a decade now that 4pm fixThe Bank of England knew about it as early as 2006. In2012, the B of E even told traders to share their information with others so that they would reduce volatility in the market. Now, rigging the foreign exchange market (or the bond and commodity markets, for that matter, too) is supposedly going to become a criminal offence. This is one of the latest measures that will be announced today by the Chancellor in a year-long inquiry that will be launched to determine just how much price-fixing and collusion has been going on in the financial markets. In 2012, it became a criminal offence, allowing for prison sentences of up to seven years, to play a role in the rigging of the interest rate benchmark (Libor). Back then, Barclays was fined £290 million (June 2012) in the UK and US. It brought about the investigation into the currency market.

4PM Fix

Currency exchange rates are set in London at 4pm every day, despite the fact that they are traded 24 hours a day. They are known as the 4pm fix or the WM/Reuters benchmark rates and they are determined by the buy and sell transactions that go through 30 seconds prior to 4pm and 30 seconds after. The median level of trades is calculated for 21 world currencies in this way. Collusion is on possibly two levels.

  1. Senior traders at banks have access to, buy and sell information regarding pending client orders. They use instant message services (groups have names such as ‘The Cartel’ or ‘The Mafia’).
  2. ‘Banging the Close’, which means pushing through enormous trades to buy or sell currencies during the slot either side of 4pm. Orders get stockpiled until that window comes around and then that will affect the currency exchange rate for the next day.

Osborne has stated: “Markets here set the interest rates for people's mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy. I am going to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them”. Wonderful [slow clap]! It really does come to something when the Chancellor of the Exchequer of the United Kingdom* has to act like the Knight in Shining Armor that he is not to make the people believe that something will actually change in the political arena. People have lost confidence simply because of speeches like this in which good is told and the bad still keep doing.

There was already a European directive to make fixing of benchmarks illegal and a punishable offence that was announced in February. But, Osborne intends to go it alone and to opt out of that one, trying to pass a law more quickly than the EU and get it implemented before the European deadline of 2016.

The currency market in London does 40% of all currency trades in the world and is the largest market, worth£3 trillion per day ($5.05 trillion), according to the Bank for International Settlements.

Day in and day out we hear of the new schemes that are being thought up in political circles that they can use as vote winners, fearful that the extreme parties in the UK and in Europe will win the voters because they are promising the earth. Mainstream politicians just don’t get it. The only thing that will win votes is actually putting all of what they say into practice; that’s all.

The Forex market is the least regulated and the most opaque still around today and being left to do what anyone wishes with it.

Originally posted: 4pm Fix

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