Early in 2014, when the FX rigging scandal was still news, one of the most disturbing developments to emerge was that none other than the venerable Bank of England itself had been engaged in collusion with various manipulating parties, explicitly those participating in "The Bandits Club", "Cartel" and other chatrooms, as described in "Bank Of England Encouraged Currency Manipulation By Banks." As Bloomberg reported at the time:
Bank of England officials told currency traders it wasn’t improper to share impending customer orders with counterparts at other firms, a practice at the heart of a widening probe into alleged market manipulation, according to a person who has seen notes turned over to regulators.
Traders representing some of the world’s biggest banks told officials at the meeting that they shared information about aggregate orders before currency benchmarks were set, three people with knowledge of the discussion said. The officials said there wasn’t a policy on such communications and that banks should make their own rules, according to the people. The notes could drag the U.K. central bank into another market-rigging scandal two years after it was criticized by lawmakers for failing to act on warnings that Libor was vulnerable to abuse.
Of course, the Bank of England promptly denied everything and pulled the Hogan's Heroes defense: "It knew nothing", and yet something stank.
The BOE is probing allegations officials condoned practices at the heart of a widening rigging scandal involving traders at the world’s largest banks. It said today the investigation has found no evidence to date its employees were involved in collusion.... The suspended individual, who wasn’t named, is being investigated and “no decision has been taken on disciplinary action.”
At a July 4, 2006, meeting led by BOE chief dealer Martin Mallett, attendees discussed “evidence of attempts to move the market around popular fixing times by players that had no particular interest in that fix,” according to the minutes. “It was noted that ‘fixing business’ generally was becoming increasingly fraught due to this behavior.”
In a May 2008 meeting of the subgroup, a “large majority” of those present expressed “concern about the lack of transparency among some methodologies and the impacts in managing order flow and pricing liquidity at times of concentrated benchmarked interest such as the 4 p.m. London fix.”
At that discussion “it was suggested that using a snapshot of the market may be problematic” and “could be subject to manipulation,” according to the minutes.
“This extensive review of documents, e-mails and other records has to date found no evidence that Bank of England staff colluded in any way in manipulating the foreign exchange market or in sharing confidential client information,” the central bank said in today’s statement. “The Bank of England does not condone any form of market manipulation in any context whatsoever.”
Today, as widely reported previously, 5 banks settled with regulators such as US CFTC, UK's CFA and Swiss Sifma, for a total amount of $3.3 billion ($1.4 billion to the CFTC, $1.75 billion to the CFA). The banks were:
- HSBC Holdings PLC
- Royal Bank of Scotland Group PLC
- UBS AG
- Citigroup Inc.
- J.P. Morgan Chase & Co.
Hilariously, as a result of "cooperating" the 5 banks received a 30% discount on their British settlement. Because when it comes to admitting one's crime there is apparently a pre-Thanksgiving blue light special.
Oddly enough, none of the other usual suspect banks, such as Goldman, Credit Suisse or Deutsche, all of whom also fired legacy FX traders and dealers, were once again completely forgotten, because clearly one can't disturb the two banks that pull the strings in the US, Goldman, and in Europe, Deutsche.
However, one less than critical bank stood out: as Bloomberg reports, Barclays dropped out due to issues with New York regulators, according to a person with knowledge of the matter. “After discussions with other regulators and authorities, we have concluded that it’s in the interests of the company to seek a more general coordinated settlement,” the London-based bank said in an e-mailed statement today.
By missing the full reduction on offer from U.K. regulators, Barclays may have to add to the 500 million pounds it set aside in the third quarter to settle currency probes, Sandy Chen, an analyst at Cenkos Securities Plc with a sell rating on the stock, said by e-mail.
“If you settle outside of stage one, which is the earliest stage, which is what this is, you get a 30 percent discount,” McDermott said at a press conference in London today. “If you settle outside of stage one you get a 20 percent or 10 percent discount.”
The New York Times reported Barclays’s perceived complications with the U.S. state’s regulator earlier. Barclays was concerned about civil liabilities and the potential of having its New York banking license revoked, the Times said.
Which means that the bank that consumed what was left of Lehman may be Lehmaned itself and soon be barred from operating in the world's financial capital, something which all of its revenue-strapped competitors will be delighted by.
But back to the Bank of England, which it turns out, lied about its involvement in FX rigging. According to Bloomberg, alongside the FX settlement announcement, the Bank of England fired its chief currency dealer - the abovementioned Martin Mallett - a day before he was faulted in an independent investigation for failing to alert his superiors that traders were sharing information about client orders.
Martin Mallett was dismissed by the Bank of England yesterday for “serious misconduct relating to failure to adhere to the Bank’s internal policies,” according to a statement by the central bank today.
Mallett, who worked at the bank for almost 30 years, had concerns from as early as November 2012 that conversations between traders right before benchmarks were set could lead to the rigging of those rates, according a report today by Anthony Grabiner, who was commissioned by the central bank to look into what its officials knew about practices under investigation around the world. Mallett was “uncomfortable” with the traders’ practices, yet he didn’t escalate these concerns, Grabiner said.
“We’re disappointed because we hold ourselves to the highest standards -- we have an outstanding markets division,” BOE Governor Mark Carney said at a briefing in London today. “What Lord Grabiner found was that our chief dealer was aware of circumstances in the market that could facilitate or lead to improper behavior by market participants.”
And then just to keep the ball rolling, the BOE lied again!
Mallett “was not acting in bad faith,” according to the Grabiner report. He wasn’t “involved in any unlawful or improper behavior, nor aware of specific instances of such behavior,” it said.
Reuters adds, that the dismissal was unrelated to an ongoing foreign exchange scandal "This information related to the Bank's internal policies, not to FX,” a BoE spokeswoman said on Wednesday. So... the Bank's internal policies on FX rigging?
Of course, Mallett's fate was sealed long ago when it became clear we was the man most directly implicated with rigging at the BofE. This is what the Times wrote in March:
Obscure prodigy poised to become centre of attention
Martin Mallett is not well-known outside the arcane circles of foreign exchange traders, but, along with the senior Bank of England officials Paul Fisher and Andrew Bailey, the public are likely to hear a lot about him in the coming months.
The Bank released 180 pages of minutes yesterday taken from meetings of a committee of senior currency traders that Mr Mallett chaired.
It was at one of the committee’s meetings in 2012 that Bank officials allegedly condoned the practice of sharing inside information before trading on the markets.
But back to the reason for Mallett's termination: we don't get it: was he fired for not rigging the market then according to the BOE's joke of an explanation?
Actually, scratch that: we do - Mallett's only crime was being exposed in the papers, and with that highlighting that the biggest ringleader when it comes to rigging markets is none other than the central bank itself. Which may have shocked someone in 2009 but now that even the CME openly admits foreign banks are among the biggest traders of the E-Mini, hardly anyone will notice.
And now we look forward to the next batch of revelations - the gold rigging scandal, and its prompt settlement for a few thousand dollars - and finding out how many central banks will fire personnel for not rigging that particular market.