The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”
Currency Market

Currency Market Rigging

Another manipulation or rigging of the investment markets has been settled. This one by major banks for rigging the currency markets.

The BNP Paribas bank agreed to pay $350 million to settle the lawsuit brought by the NY banking regulators. The French bank said that it “deeply regrets” the misconduct. Of course, they do, especially the part of having been caught.

Doesn’t that make you feel warm and fuzzy all over to get this apology?

According to the WSJ:

The New York Department of Financial Services said deficient oversight at BNP Paribas “allowed nearly unfettered misconduct” among traders and salespeople in the bank’s foreign-exchange business, in violation of New York banking laws. The investigation focused on misconduct that began a decade ago, involving at least a dozen BNP Paribas employees around the world.

In particular, according to regulators, one trader at the bank’s New York branch labeled the chat group “cartel” and worked with colleagues at other large banks to conduct fake trades during light trading hours that caused currency prices to spike upward or downward.

The trader manipulated prices and spreads in several currencies, including the South African rand and Turkish lira.

The investigation also found that BNP Paribas traders improperly exchanged confidential customer information with employees at other banks, which led to traders adjusting prices to unfairly profit at these customers’ expense.

Under the terms of the consent order, the bank admitted to the regulator’s allegations.

Wednesday’s settlement is part of a long-running probe by regulators around the world into possible manipulation of foreign-exchange rates. The investigation has led to the suspension or firing of traders at around a dozen banks in the largest currency dealing hubs.

Our view:  It’s amazing that the managers and top executives never knew about this. Were they asleep for 10 years?

The wheels of justice grind very, very slowly. Usually it’s the Europeans who lead the battle against manipulation. There have been settlements in interest rate (LIBOR) rigging, gold, silver, etc. We ask, what about all the manipulation in the US by high frequency trading (HFT)? Those manipulations are just as blatant, but involve much more money.

The currency markets (FX) years ago were our favorites. We had a technical program that was amazing in calling the swings. The managed FX program of our affiliate was rated #1 by MAR. But then the market changed character. At first we didn’t know why. The signals stopped working and the intraday movements appeared to be manipulated. Other top FX managers experienced the same. As we now know, manipulation was probably the problem. We quit trading FX. It was probably a good decision.

Since that time we have cautioned neophytes to stay away from all the FX programs being offered, where they tell you for $500 you can trade $100,000 and get rich. Don’t believe it. These are scams.