Why Is The NY Attorney General Not Prosecuting The Real FX Spoofing Criminalgos

In a world where every market is rigged and manipulated - either by central banks, by algos, or by human actors eager to "get rich quick" - we doubt many will care that the New York Attorney General has finally figured that the FX market was also rigged by spoofing (something we have pointed out since 2013), and yet this latest development is worth pointing out.

The reason for that is not so much the companies which are named in this latest crackdown on widespread manipulation in the world's most important market (now that all central banks are engaged in currency warfare) but which are not.

According to Bloomberg, the NYAG is investigating possible manipulation in foreign-exchange trading, according to a person familiar with the matter, aiming more scrutiny at a market already tainted by scandals that have led to billions of dollars in fines. The new investigation of foreign-exchange options comes after several banks paid nearly $6 billion earlier this year for colluding to rig currencies. Only there they rigged FX using the oldest trick in the book: anonymous bandwagoning using chat rooms. This time the focus is on what Nav Sarao was blamed for doing when he "caused" the 2010 Flash Crash.

The investigation centers on brokers who may be placing fake orders, a technique sometimes called spoofing, according to the person. These practices are also referred to as ghosting, because they create the impression of activity that isn’t really there.

Who is implicated? According to Bloomberg, Schneiderman has sent subpoenas for records to interdealer brokers including TFS-ICAP, Tullett Prebon Plc, BGC Partners Inc. and GFI Group Inc.

Spokespeople for the brokers declined to comment. TFS-ICAP is an ICAP Plc joint venture, and BGC Partners owns GFI. Matt Mittenthal, a spokesman for Schneiderman, declined to comment.


The investigation, still in its early stages, is examining whether fake bids and offers in FX options were posted on the electronic trading platforms hosted by the interdealer brokers, in order to ramp up interest from options traders in largely illiquid emerging-market currencies, according to the person familiar with the investigation.

Sure enough the market reacted quickly and shares of ICAP dropped as much as 1.4 percent after the news broke. Tullett Prebon lost as much as 1.6 percent, and BGC slumped up to 3 percent.

But, as we said above, more interesting than who was named in this latest "investigation" is who wasn't - and while the "carbon-based" interdealer traders are looking at billions more in settlement charges and fines over the coming months, the real culprits of constant FX spoofing remain unnamed. We refer of course, to the algo-based "FX traders" of the Virtus, the Volants, the Citadels of the world... but especially the latter, whose role in executing NY Fed trades and curb sharp market moves lower, is well known and has been documented in the past.

We also refer to the central banks themselves who trade either directly out of their own account, as the SNB, or via trust banks such as the BOJ, or like the NY Fed which transacts in various pathways, but most notably by spoofing FX using HFT trading firms.

So why not go after the true FX riggers?

Because as noted above, if one really begins pursuing the spoofers, one will ultimately have to charge central banks for engaging in this criminal behavior. And that is unacceptable because with central bank credibility already on the way out, the last thing the monetary "authorities" need is for the general population to realize that the concept of price discovery has been dead since 2008.

And yet, if one really wants true price transparency and discovery to ever return to markets, instead of focusing on various anonymous small-time traders in aptly-named chat rooms, they should look at just one thing: the central banker meetings every other month on Sunday at 7pm in conference room E at the eighteenth floor of the BIS tower in Basel.

They won't.

First unofficial meeting of the BIS Board of Directors in Basel, April 1930.