Understand how a “mafia” of traders manipulated exchange rates

THE ECO SCAN – Several giant banks have received fines totaling 10 billion dollars for manipulating exchange rates. Traders have thus cheated on the biggest market in the world, to make a profit. Explanations.

These are sanctions that will mark the history of fines imposed on banks. It must be said that the case is huge. And also, very complicated to understand. Here are a few points that will allow you to understand what happened on the biggest market in the world, that of foreign exchange, until then known to be completely hermetic… to manipulation.

Which banks have been sanctioned?

They are mastodons of global finance: the Americans and the Europeans (British), (British) and (Swiss). They have just been inflicted, after months of investigation. Last November, six banks (the same, except that HSBC was targeted and not Barclays) had already been ordered to pay 4.3 billion dollars for the same actions. Total bill: $ 10 billion!

• Why?

Because they manipulated the exchange rates between 2008 and 2013. Just that… The foreign exchange market or currency market, whose small name for insiders is “Forex”, is (hold on tight) 5300 billions of dollars (yes, 5,300,000,000,000 dollars) that are exchanged … every day! It is the market of all superlatives: the largest financial market in the world, commonly presented as the most liquid, the most transparent, and until then known to be completely sealed off from manipulation …
You can consult the latest report of the BIS (Bank for International Settlements) on the currency market .

How did the forex market ultimately come to be manipulated?

Traders from these banking giants exchanged confidential information about their clients and worked together to bet on the currency market. How? ‘Or’ What? By taking advantage of a key moment in a typical day on the currency market: the fixing.

What is a fixing?

In fact, in this market where currencies from all over the world are exchanged (euros, US dollars, Australian dollars, Canadian dollars, pounds sterling, yen, rubles, rupees etc.), exchange rates (euro against dollar, pound against yen, Swedish krona against Brazilian real …) fluctuate 24 hours a day. fixing (that is to say a reference rate), which is established, and which aims to be as close as possible to the reality of the supply and demand of currencies exchanged in the world. This fixing is called the “WM / Reuters” or the “4pm fix”, since it takes place at 4 pm, every day of the year.

• Who sets this benchmark rate?

It is which fixes every day the famous fixing, in London. To determine this, WM Company gathers all the exchanges that take place in the currency market (for 21 major world currencies), in a very short period of time: a small minute. Or 30 seconds before 4 p.m. and 30 seconds after 4 p.m. This fixing serves as a reference for financial players to assess the value of their assets.

For all the crisp details on the fixing, you can consult , 18 pages of happiness in English.

• So that’s when traders got together?

Exactly. Traders from different banks have come together to protect their positions or “move” the market. How? ‘Or’ What? By placing orders for staggering amounts on the market, precisely between 3:59 p.m. and 4:30 p.m. Massive sales and purchases of currencies that were decided together, based on the orders that had already been placed by their respective clients. So traders were one step ahead, they were sure to win.

So traders have bet hundreds of millions of dollars on currencies, through computers that allow them to program their trades and execute them at the speed of light. Such a weight, suddenly, on the market, thus made it possible to vary the prices, in the direction which they had envisaged. All with leverage effects (a financial tool that allows you to multiply your winnings in the event of a good bet). Enough to ensure them, in fine, considerable profits! Conversely, all other things being equal, cheating made all the others lose these millions (private investors, investment funds etc.).

• How were these traders able to talk to each other discreetly?

As simple as it sounds, they chatted to each other! The exchange of messages is edifying. They were published by the authorities at the end of 2014. The famous traders throw flowers at each other (like “bravo guys”, “good job”), they are called among themselves “the dream team”, “the mafia” or “ the cartel ”… Obviously, the traders concerned have consulted. And knew that it was forbidden: “Will he protect us like we are protecting each other from our own divisions?”, Ask three close-knit traders (one from Citigroup, one from JP Morgan and one from UBS) , who wonder if they should include a fourth trader in their private … and illegal discussions.

No trader has been charged in this exchange rate manipulation case. Barclays has nevertheless promised to fire eight of its employees.

Very heavy fines since 2012

This case of manipulation of exchange rates follows another scandal of manipulation that rocked several major world banks in mid-2012, Barclays in the lead:, this interbank rate on which our consumer and real estate loans are indexed. Again, emails and other text messages from traders were leaked revealing how they had colluded to manipulate Libor rates.

Despite the many scandals that have been revealed in recent years (subprimes, money laundering, help with tax evasion, violation of international sanctions, Libor, etc.), and ever-higher fines from the authorities, the accounts of the big banks are not strongly impacted. But their reputations continue to be tainted. Especially since they all pleaded guilty at the same time. A first in the history of banking procedures.