Traders Manipulated Currency Rates To Profit Off Clients: Report


To the long and growing list of global markets subject to wanton manipulation by traders, including interest rates, derivatives, gold and oil, we can now add the currency market.

Traders at banks around the world have regularly worked together for "at least a decade" to move a key benchmark currency rate in ways that profit them and hurt their clients, Bloomberg reports, citing anonymous former traders.

"The FX market is like the Wild West," a foreign-exchange trading advisor told Bloomberg. "It's buyer beware."

The Financial Conduct Authority, a U.K. regulator, is considering rousting itself from its couch and having a look into these allegations, according to Bloomberg. It could turn out to be a busy summer for the FCA and other regulators, which were already looking into the alleged manipulation of derivatives and crude oil.

And of course this latest news comes a year after the start of the still-ongoing probe into widespread manipulation of the London Interbank Offered Rate, or Libor, a benchmark interest rate that affects borrowing costs around the world. A handful of big banks have already paid fines in that case, and some traders have been fired. Given that set of fairly manageable consequences, it's understandable that traders would continue to find different things to manipulate for fun and profit.

In fact, this sort of thing goes on so often that we have pretty much forgotten some of the other market-manipulation scandals of recent months, including the gold and silver markets and the British natural-gas market.

One thing that makes the alleged currency-market manipulation potentially more vile than those others is that this apparently involved front-running client trades, a more-direct method of separating suckers from their money than the other scandals.

The Libor-like scandals generally involved traders agreeing to set prices where they liked, which only accidentally screwed clients, such as state and local governments that had bought interest-rate swaps based on Libor, for example. In the currency manipulation, traders allegedly placed their own bets ahead of the bets of clients, in order to make money when their clients' trades moved the market. And traders allegedly worked together with traders of other banks to do this, in order to spread the wealth around -- to everybody but the poor dumb clients, that is.

There is also the size of the stakes involved: The global foreign-exchange market churns $4.7 trillion every day, making it by far the biggest market in the world. (Libor affects derivatives contracts that bet on hundreds of trillions of dollars, but those are "notional" amounts, meaning not nearly that much money is actually at risk.)

The forex market is also, as Bloomberg notes, among the least-regulated markets in the world. It is also one of the world's fastest-growing markets, with more and more institutional investors jumping in to try their luck -- more clients for the traders to fleece, in other words.

When the Libor news broke last year, some foreign-exchange players were heard to mutter, in so many words, "Wait until they see what goes on the currency market." Well, now's our chance.



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