Foreign exchange trading faces SFO criminal investigation
Traders allegedly used chatrooms to collude in fixing benchmark prices, used for trillions of dollars of investment and trade
Simon Goodley
theguardian.com,
Monday 21 July 2014 13.01 EDT
It is alleged that traders used online chatrooms to collude in the fixing of benchmark prices, which are used as reference rates for trillions of dollars of investment and trade globally. Photograph: Julien Behal/PA
The Serious Fraud Office has launched a criminal investigation into alleged rigging of the £3tn-a-day foreign exchange markets.
The move comes after around 15 authorities around the world said they were investigating allegations of collusion and price manipulation in the largely unregulated currency market – which the Bank of England governor, Mark Carney, has suggested could prove to be a bigger scandal than the manipulation of Libor, which has cost investment banks billions of pounds in fines imposed by regulators.
In a statement on Monday, the UK's anti-corruption agency confirmed: "The director of the Serious Fraud Office has today opened a criminal investigation into allegations of fraudulent conduct in the foreign exchange market."
The allegations, which have yet to be proved, are thought to centre around traders from rival banks using internet chat rooms to collude in the fixing of benchmark prices, which are used as reference rates for trillions of dollars of investment and trade globally.
Attention has focused on the benchmark price established at 4pm – ironically called the "fix" or the "fixing" – which is the price many clients request is used when they conduct foreign exchange trades, chiefly because it is considered to be transparent.
Mark Taylor, the dean of Warwick Business School who was once a foreign exchange trader and senior economist at the Bank of England, said: "The manipulation of the 'London 4pm Fix' doesn't just affect banks and traders, but the man in the street as well, as it is our pension and insurance funds that could be swindled out of millions of pounds by this.
"If some of the big players in the market got together and put through some very large trades - billions of dollars each - then that could affect the market, so they can charge their clients a higher rate before covering it a few minutes later to make a healthy profit. You only have to move the market a small amount for a short period, and that could be worth millions of dollars for the banks".
Unlike in the Libor-rigging scandal, where a few banks manipulated benchmark interest rates, foreign exchange traders cannot easily guarantee prices move in their favour as the market is so huge. However, currency experts say that the market is heavily biased towards the professionals sitting on trading desks, who gain an edge by automatically receiving information far superior to that used by outsiders, and then trade using that advantage. Their advantage would theoretically be much greater if any of them colluded to share their information, or timed orders to suit their needs.
Iain Coke, head of financial services at the accounting trade body ICAEW, said: "Any allegation of the manipulation of foreign exchange rates further undermines confidence in banks and financial markets. Collusion and price fixing are a form of fraud ... Financial crime must be taken just as seriously as any other form of crime. It is also right that this is being investigated under criminal law, which sends a strong message that banks, bankers and market participants are not immune."
The US department of justice and the UK's Financial Conduct Authority are among the numerous regulators from around the world that are investgating whether currency traders have rigged markets.
More than 20 individuals have either been suspended or fired from financial institutions as international regulators investigate allegations of rigging in the currency markets, while in March the Bank of England suspended a member of staff in connection with its own review of the currency trading market. Much of the focus has centred on individuals in London, which accounts for a large part of the world's foreign exchange trade.
Marshall Bailey, president of the financial markets trade organisation ACI International, suggested that if any crimes are found to have been committed, they should be blamed on rogue individuals rather than on the internal culture at any City institution.
He said: "Individuals who participate in so-called 'rigging' and commit fraud have no place in financial markets and should be identified and punished accordingly. However, the actions of a small unrepresentative minority should not be seen to reflect the broader health of the industry, or trigger wider structural reform to what remains a highly efficient foreign exchange market. The goal of any probe should be to root out wrongdoers on an individual basis, rather than vilify banks".
http://www.theguardian.com/business/2014/jul/...aud-office
original post/link courtesy of basserdan
Traders allegedly used chatrooms to collude in fixing benchmark prices, used for trillions of dollars of investment and trade
Simon Goodley
theguardian.com,
Monday 21 July 2014 13.01 EDT
It is alleged that traders used online chatrooms to collude in the fixing of benchmark prices, which are used as reference rates for trillions of dollars of investment and trade globally. Photograph: Julien Behal/PA
The Serious Fraud Office has launched a criminal investigation into alleged rigging of the £3tn-a-day foreign exchange markets.
The move comes after around 15 authorities around the world said they were investigating allegations of collusion and price manipulation in the largely unregulated currency market – which the Bank of England governor, Mark Carney, has suggested could prove to be a bigger scandal than the manipulation of Libor, which has cost investment banks billions of pounds in fines imposed by regulators.
In a statement on Monday, the UK's anti-corruption agency confirmed: "The director of the Serious Fraud Office has today opened a criminal investigation into allegations of fraudulent conduct in the foreign exchange market."
The allegations, which have yet to be proved, are thought to centre around traders from rival banks using internet chat rooms to collude in the fixing of benchmark prices, which are used as reference rates for trillions of dollars of investment and trade globally.
Attention has focused on the benchmark price established at 4pm – ironically called the "fix" or the "fixing" – which is the price many clients request is used when they conduct foreign exchange trades, chiefly because it is considered to be transparent.
Mark Taylor, the dean of Warwick Business School who was once a foreign exchange trader and senior economist at the Bank of England, said: "The manipulation of the 'London 4pm Fix' doesn't just affect banks and traders, but the man in the street as well, as it is our pension and insurance funds that could be swindled out of millions of pounds by this.
"If some of the big players in the market got together and put through some very large trades - billions of dollars each - then that could affect the market, so they can charge their clients a higher rate before covering it a few minutes later to make a healthy profit. You only have to move the market a small amount for a short period, and that could be worth millions of dollars for the banks".
Unlike in the Libor-rigging scandal, where a few banks manipulated benchmark interest rates, foreign exchange traders cannot easily guarantee prices move in their favour as the market is so huge. However, currency experts say that the market is heavily biased towards the professionals sitting on trading desks, who gain an edge by automatically receiving information far superior to that used by outsiders, and then trade using that advantage. Their advantage would theoretically be much greater if any of them colluded to share their information, or timed orders to suit their needs.
Iain Coke, head of financial services at the accounting trade body ICAEW, said: "Any allegation of the manipulation of foreign exchange rates further undermines confidence in banks and financial markets. Collusion and price fixing are a form of fraud ... Financial crime must be taken just as seriously as any other form of crime. It is also right that this is being investigated under criminal law, which sends a strong message that banks, bankers and market participants are not immune."
The US department of justice and the UK's Financial Conduct Authority are among the numerous regulators from around the world that are investgating whether currency traders have rigged markets.
More than 20 individuals have either been suspended or fired from financial institutions as international regulators investigate allegations of rigging in the currency markets, while in March the Bank of England suspended a member of staff in connection with its own review of the currency trading market. Much of the focus has centred on individuals in London, which accounts for a large part of the world's foreign exchange trade.
Marshall Bailey, president of the financial markets trade organisation ACI International, suggested that if any crimes are found to have been committed, they should be blamed on rogue individuals rather than on the internal culture at any City institution.
He said: "Individuals who participate in so-called 'rigging' and commit fraud have no place in financial markets and should be identified and punished accordingly. However, the actions of a small unrepresentative minority should not be seen to reflect the broader health of the industry, or trigger wider structural reform to what remains a highly efficient foreign exchange market. The goal of any probe should be to root out wrongdoers on an individual basis, rather than vilify banks".
http://www.theguardian.com/business/2014/jul/...aud-office
original post/link courtesy of basserdan
