It's official (again): Bankers are criminals
While this is not normally thought of as "fundamentals" it really doesn't get more "funnymental" than this. Here are some excerpts from a newsletter by the insightful Larry Levin referring to the most recent fines imposed on some banks for their illegal FX trading practices.
13 November 2014
This morning regulators in the U.S., Britain and Switzerland ordered five banks to pay about $3.3 billion in the first wave of penalties since authorities began a global probe into the rigging of key foreign-exchange benchmarks last year.
While these sound like big scary numbers, we have to remember who is getting whacked. How could any entity survive these fines? Well, the banks have set aside about $5.3 billion in recent weeks for legal matters, including the currency investigations. The fact is that the balance sheets of the big banks can absorb this kind of hit. Not bad to have a spare couple of billion dollars in the rain day fund.
From Bloomberg we get the details:
Switzerland’s UBS AG (UBSN) was ordered to pay the most at $800 million, according to statements from the U.S. Commodity Futures Trading Commission, Britain’s Financial Conduct Authority and the Swiss Financial Market Supervisory Authority. Citigroup Inc. (C) will pay $668 million, followed by JPMorgan Chase & Co. (JPM) at $662 million. Royal Bank of Scotland Group Plc was fined about $634 million and HSBC Holdings Plc (HSBA) $618 million. Barclays Plc (BARC), which had been in settlement talks, said it wasn’t ready for a deal.
Banks and individuals could still face further penalties and litigation following the 13-month probe into allegations dealers at the biggest banks colluded with counterparts at other firms to rig benchmarks used by fund managers to determine what they pay for foreign currency. The U.S. Justice Department and Britain’s Serious Fraud Office are also leading criminal probes into the $5.3 trillion-a-day currency market.
“The traders put their own interest ahead of their customers, they manipulated the market -- or attempted to manipulate the market -- and abused the trust of the public,” FCA Chief Executive Officer Martin Wheatley told reporters at a briefing in London today. The regulator will press firms to review their bonus plans and claw back payments already made.
With these harsh words and stiff penalties the European banks stocks must have taken a hit overnight? Nope.
UBS rose 0.4 percent to 16.82 francs in Zurich, while RBS was also up 0.5 percent at 379.60 pence. Only Barclays fell 1.5 percent to 231.15 pence as of 10:36 a.m. in London trading. By delaying, Barclays won’t now receive the 30 percent reduction in its penalty the FCA awarded the other banks settling today.
14 November 2014
Yesterday I described how the banking cartel were able to fleece (read: screw) all FX traders (read: Muppets) over a period of many years. As usual, the fine did not nearly fit the level of crime committed by the cartel, which may be enormous. According to the Bank for International Settlements, there is at least a DAILY turnover of $5.35 trillion, while the FX rigging scandal went on for years. The penalty? $4.3 billion across all banksters in total...with a blue-light discount of 30% if paid early!
Today, however, I would like to add some color as to what was said between so-called brokers.
JPM triggering client stop loss orders
During its investigation, the Authority identified instances within JPMorgan’s G10 spot FX trading business of attempts to trigger client stop loss orders. These attempts involved inappropriate disclosures to traders at other firms concerning details of the size, direction and level of client stop loss orders. The traders involved would trade in a manner aimed at manipulating the spot FX rate, such that the stop loss order was triggered. JPMorgan would potentially profit from this activity because if successful it would, for example, have sold the particular currency to its client pursuant to the stop loss order at a higher rate than it had bought that currency in the market.
This behavior was reflected in language used by G10 spot FX traders at JPMorgan in chat rooms. For example, a JPMorgan trader explained to other traders in a chat room that he had traded in the market in order “to get the 69 print” (i.e. to move the spot FX rate for that currency pair to the level (“69”) at which a stop loss would be triggered). On another occasion, the same trader disclosed the level of certain clients’ stop loss orders to other JPMorgan traders in a chat room and asked “shall we go get these stops?”
* * *
UBS tigerring stop loss orders
During its investigation, the Authority identified instances within UBS’s G10 spot FX trading business of attempts to trigger client stop loss orders. These attempts involved inappropriate disclosures to traders at other firms concerning details of the size, direction and level of client stop loss orders. The traders involved would trade in a manner aimed at manipulating the spot FX rate, such that the stop loss order was triggered. UBS would potentially profit from this activity because if successful it would, for example, have sold the particular currency to its client pursuant to the stop loss order at a higher rate than it had bought that currency in the market.
This behaviour was reflected in language used by G10 spot FX traders at UBS in chat rooms. For example, one UBS trader commented in a chat room “i had stops for years but they got sick of my butchering”. On a subsequent occasion, the same trader described himself as “just jamming a little stop here.”
UBS leaking confidential information
The attempts to manipulate the WMR and ECB fixes and trigger client stop loss orders described in this Notice involved inappropriate disclosures of client order flows at fixes and details of client stop loss orders.
HSBC cheats too (a lot it seems)
(From an investigation) At 3:36pm, Firm D asked Firm A in a chat room (which included HSBC), for an update on its net sell orders. Firm A disclosed that it had now increased to GBP170 million. Firm D noted that it did not have any fix orders at that time, but commented that he expected Firm A to “bash the fck out of it”.
At 3:38pm, HSBC commented simultaneously into chat rooms in which Firms A, C and D participated that it had net client sell orders at the fix for GBP in a “good amount”.
At 3:42pm, in a one-to-one chat Firm A warned HSBC that another firm which was not a participant in the chat room (Firm E) was “building” in the opposite direction to them and would be buying at the fix.
Have you ever felt like brokers were “gunning” your stops and knew damn well where they were? Hmm, maybe you were correct?
HSBC likes to “gun” client stops:
For example, an HSBC trader in a chat room referred to “going to go for broke at this stop… it is either going to end in massive glory or tears”. On another occasion, the same trader refers in a chat room to the fact he is “just about to slam some stops”. When asked by a colleague whether a particular client’s stop loss orders were “a pain for you guys”, another HSBC trader replied “nah love them … free money” and “we love the orders … always make money on them”.
And there is oh-so-much more but just not enough room to print...
So if you happen to wonder why I call it all “Fraud Street” or “rigged” or anything similar, now you have a better understanding. There are better overall reports of this FX scandal out there, but I hope this starts you on the right path for the truth: It's rigged!
"The banks have been allowed to investigate themselves," one source familiar with the investigation told Reuters. "The investigated decide what they want to investigate, what they admit to, and how much they will pay."