FX Probe Extends To Options: "Oh God, Look What We've Uncovered"

Discussion in 'Men's Economics' started by beezil, Feb 10, 2014.

  1. beezil

    beezil Member

    • Deutsche Bank

    As an increasing number of FX traders are disappearing from bulge bracket banks (for "entirely unrelated to the FX probe" reasons), the WSJ reports that European and US regulators are expanding the scope of the manipulation probe. In the course of sifting through mountains of documentation, banks have found an array of apparent misconduct, according to people involved with the investigations and now the FX options market has come under scrutiny. "It's the banks saying, 'oh God, look what we've uncovered, there's a whole lot of issues'," a person familiar with the investigation said.
    Via WSJ,
    A regulatory probe that flamed up in one corner of the vast foreign-exchange market is now engulfing the entire industry.

    The latest conflagration: concerns about a type of foreign-exchange derivative that is widely used by financial institutions and companies world-wide, according to a person familiar with the matter.


    These contracts, which banks often sell to clients, pay out in the event that exchange rates reach certain levels. They are heavily traded: A notional $337 billion changes hands in the overall FX options market each day, according to the Bank for International Settlements.

    Behind the scenes, though, banks often buy or sell currencies aggressively to prevent those levels from being breached, according to traders and banking executives. That may be to the detriment of clients, who would otherwise potentially receive a payment, these industry officials say, although banks see it as a way to protect their cash. Such tactics are commonplace, traders say.


    As part of banks' internal reviews into their foreign-exchange businesses, some recently have found potential problems with trading involving the options, according to the person familiar with the matter.


    One former trader at Deutsche Bank in New York was fired after chat room messages showed he joked about his ability to affect the price of a barely-traded currency—the Argentine peso—people familiar with the matter say. The bank has fired three other executives, including at least one in Latin America, in connection to trading practices not related to the London fix, according to a person familiar with the matter.


    Authorities are also looking into whether some foreign-exchange bankers inappropriately traded in their personal accounts. This practice is forbidden at some banks, though there is not a blanket ban across the industry. It is frowned upon because of the possibility traders could use privileged information for their own profit.

    In all, about 20 traders and bankers including some in New York, London and Tokyo have now been suspended or fired since authorities started to investigate the foreign-exchange markets.
    As a gentle reminder, here is the original uncovering of at least one of the manipulations:

    The same pattern -- a sudden surge minutes before 4 p.m. in London on the last trading day of the month, followed by a quick reversal -- occurred 31 percent of the time across 14 currency pairs over two years, according to data compiled by Bloomberg.

    Attached Files:

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  2. Voltrader

    Voltrader Member

    Institutions using derivatives to further enhance their pockets. Hmmm...is that not par for the course. Especially in the FX markets which ranges are obviously maintained by the institutions. Hey its just paper.
  3. beezil

    beezil Member

    The fact that its just paper... is the problem.

    the disparity of wealth is scary.

    something must be shaking the banking world... a few of them have been suicidal lately...:cool::eek:
  4. Voltrader

    Voltrader Member

    Oh yea I agree something is definetely shaking. Those guys are starting to drop like flies. The scary thing is what happens if and when this paper sham unravels.
    The question to be asked is....was it suicide? I think its funny in the FX markets it seems that everyone is positioning for which currency fails first like a big race between the USD,EUR,JPY.
  5. beezil

    beezil Member

    absolutely right sir!

    on the other side of the coin... which ones RV??

    or will create a temporary stalemate between the brics and the fiat.

    scary times...
  6. beezil

    beezil Member

    BLOOMBERG: Carney Ordered Full Examination of Records in BOE FX Probe (ILLEGAL CURRENCY MANIPULATION)

    Mark Carney told Bank of England directors that he ordered a “full examination” of internal records for a probe into allegations that officials condoned practices behind the currency-manipulation scandal.

    The governor described the scope of the investigation to the BOE’s supervisory board, known as the Court of Directors, on Dec. 11 in London, according to minutes of the meeting. Also present at the gathering were the central bank’s three deputy governors and its chief operating officer,Charlotte Hogg.

    “The governor referred to regulatory investigations into apparent attempts by traders to manipulate foreign exchange markets,” the Court’s minutes said. “It had been suggested that the bank had been aware of the potential for manipulation and that the matter had been discussed at the meeting of a market committee chaired by the bank. The bank initiated in October a full examination of records, with external legal assistance, and Court would be informed of the outcome.”

    Bloomberg News reported on Feb. 7 that senior currency dealers at banks including Citigroup Inc. and UBS AG (UBS) told BOE officials at an April 2012 meeting that they discussed positions ahead of key benchmarks and matched buyers and sellers ahead of the fix to avoid trading then. Central bank representatives said they viewed the practices as positive to reduce market volatility and banks should formulate their own policies, according to three people with knowledge of the matter.

    2012 Meeting

    Dealers at the 2012 meeting were told by the BOE officials present not to record the discussion or take notes, a person with knowledge of the discussion said earlier this month.

    Andrew Bailey, chief executive officer of the BOE’s Prudential Regulation Authority, told U.K. lawmakers on Feb. 11 that management are taking the claims “very seriously,” and the central bank “does not condone any form of market manipulation.”

    Such scrutiny might encourage officials to review the nature of future interractions with market participants. The probe centers on meetings held by the chief dealers’ subgroup of the BOE’s Foreign Exchange Joint Standing Committee. Carney’s comments in the Dec. 11 minutes don’t indicate how long the investigation could take or hint at its outcome.

    The group was set up in 2005 to bring central bank officials together with spot traders from the world’s largest banks to discuss market issues. It held three meetings in 2012.

    Scandal Criticism

    The allegations have dragged the BOE into another market-rigging scandal less than two years after it was criticized by politicians for failing to act on warnings that the London interbank offered rate was vulnerable to abuse. The central bank had no responsibility for regulating U.K. lenders at the time.

    At the December meeting, Court directors reviewed management responses to recommendations as part of an internal review commissioned after the Libor criticism. These included a database for all e-mails that would be searchable in the event of any dispute or formal investigation. It would not be part of the normal records system.

    The directors said the internal review should be published and that progress on its recommendations should be reported to the BOE’s Oversight Committee in the first half of 2014.

    Among other matters discussed in December, Hogg said work on the McKinsey & Co.-led strategic review of the BOE was “progressing” and was “about halfway through.” Findings of a staff survey conducted as part of the plan had been received, the minutes said.

    Communications Risk

    Directors also asked Executive Director for Communications Nils Blythe on the response by the BOE to indications from market intelligence that communications was the most significant risk to the central bank.

    “Blythe emphasized the closer co-ordination between Monetary Policy Committee members and the press team, and the increasing public awareness of the Financial Policy Committee and its role,” the minutes said. “This had reduced the risk of mixed messages, and helped to promote more co-ordinated presentation of policies.”

    Finance Director Ralph Coates told the Court that BOE income was likely to be 35 million pounds ($58 million) below budget in the year to February, mostly due to lower-than-expected participation in the central bank’s Funding for Lending Scheme. Coates also said spending would be 8 million pounds under budget, citing “headcount shortfalls” at the PRA.

    The minutes also reveal concerns within the board of the PRA about the regulator’s ability to conduct asset-quality reviews of banks. One option would be to hire external parties to carry out studies, according to the document.

    To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

    To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
  7. beezil

    beezil Member

    Currency War Could End in Global Monetary Collapse

    A global currency war is raging, and the results may not be pretty, says Forbes contributor Robin Lewis.

    In the United States, exports may benefit temporarily, but not for the long term, he writes.

    And overall, "what if this time is different from all past deflationary and inflationary cycles? What if the international monetary system destabilizes and collapses, and inflation does not rise sharply?" Lewis says.

    "Just as the Fed’s quantitative easing was supposed to juice our economy, but instead, simply juiced the traders, why would anybody believe that the central banks around the world could stop the enormous forces being set in motion in" so many countries.

    People around the world may come to view paper money as worthless, Lewis writes.

    The result could be "at best, a global Japan-style deflation, at worst, a worldwide depression," he says. "Then, maybe we’ll go back to bartering, where borrowing, debt and interest rates will not exist. A time when the value of goods and services actually meant something. Hmm."

    Fears of a messy end to global currency wars have been a current hot topic.

    In its most recent Global Economic Perspectives report, the World Bank highlighted the “impossible trinity” of achieving autonomy over monetary policy, stable exchange rates and full capital account openness.

    For its part, the New York Times Editorial Board recently said that “what leaders of developing countries ought to be doing now is addressing economic problems like inflation and corruption while investing in infrastructure and education.”

    Earlier last month, the board advised that “emerging markets could better protect themselves from the rapid flow of foreign capital into and out of their financial systems by regulating them.”

    Elsewhere, China's central bank has apparently joined in the currency war in recent days, helping to push the yuan to a 10-month low against the dollar Friday.

    "Nobody dares to trade against the PBOC [People's Bank of China]. Nobody dares to buy the yuan heavily," a Shanghai-based trader at a large foreign bank told The Wall Street Journal.

    Forbes' Robin Lewis: Currency War Could End in Global Collapse
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  8. Voltrader

    Voltrader Member

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  9. beezil

    beezil Member

    Bank of england suspends staff member as it probes currency manipulation

    The Bank of England suspended a staff member and published records showing concerns about risks of benchmark currency-rate manipulation were raised in meetings as early as July 2006.

    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 central bank requires staff “to follow rigorous internal control processes,” according to the statement. The suspended individual, who wasn’t named, is being investigated and “no decision has been taken on disciplinary action.”

    STORY: In Fake Classes Scandal, UNC Fails Its Athletes—and Whistle-Blower

    The minutes released today chronicle meetings of the Chief Dealers’ Subgroup of the Foreign Exchange Joint Standing Committee through February 2013. The group was formed in 2005 to bring together central bank officials with spot traders to discuss market issues.

    Bloomberg News reported on Feb. 7 senior currency dealers at banks including Citigroup Inc. and UBS AG (UBS:US) told BOE officials at an April 2012 meeting of the group that they discussed positions ahead of key benchmarks and matched buyers and sellers before the fix to avoid trading then. Central bank representatives said they viewed practices that reduced market volatility as positive and banks should form their own policies, according to three people with knowledge of the matter.

    STORY: Why Negativity Is Really Awesome

    ‘Increasingly Fraught’

    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.”

    Two months later at a gathering at HSBC Holdings Plc’s offices in Canary Wharf in London, Brian Dawson -- then an executive at World Markets Co., a unit of Boston-based State Street Corp. -- gave a presentation on the methodology for calculating the WM/Reuters benchmark currency rates. 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.

    STORY: Boutique Hotelier Ian Schrager and Marriott Join Forces

    ‘Doesn’t Condone’

    Mallett said the dealers group would be “happy to communicate further with WM Company” on how to “enhance the model,” according to those minutes.

    According to notes of a Dec. 11, 2013, meeting of the BOE’s governing body released last week, Governor Mark Carney told the central bank’s directors he’d ordered a “full examination” of internal records. That review has examined 15,000 e-mails, 21,000 Bloomberg and Reuters chat-room records and more than 40 hours of telephone recordings.

    “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.”

    STORY: Ukraine's Elite: Living in Luxury, All Across Europe

    The BOE said the governing body’s Oversight Committee will investigate if officials were involved in “attempted or actual manipulation of the foreign-exchange market,” aware of any such activity or if they were involved in the sharing of any confidential client information.

    The committee has hired Travers Smith LLP as external legal advisers to prepare a report of the investigation.

    To contact the reporters on this story: Scott Hamilton in London at shamilton8@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net; Liam Vaughan in London at lvaughan6@bloomberg.net
  10. Voltrader

    Voltrader Member

    Where is the rope? Over/Under on this guys life expectancy.
  11. beezil

    beezil Member

    whats the tally now??? i believe another one has gone down as well...