Written by Brett Chatz, Intertrader
$5 Trillion a Day with Insider Trading?
The recent punitive measures taken against several multinational banks have drawn attention to price fixing in the currency markets.
Global Collusion Uncovered in FX Markets
Manipulation of the global financial markets is something eschewed by the world’s regulatory authorities and financial oversight committees. Yet, in spite of abhorrence to these unlawful practices this type of misconduct takes place all the time. Just recently, at least 7 international banking institutions were slapped with billions of dollars in penalties for such practices. The total punitive charges levelled against these banks exceeded $10.3 billion. The penalties were slapped on the banks for joint manipulation of currency markets, price fixing and bid rigging too.
The global currency market is worth an estimated $5 trillion daily and this makes it the biggest decentralised market in the world. While it is a global market, it is largely located in London and New York. At no point in the history of global currency trading was there much talk of collusion, but that changed in 2006. The reasons this was never a factor was the real-time trading of the markets and the transparency in forex rates. Since so many banks are involved, it becomes very difficult (impossible) for any single entity to influence the markets in a substantial way. There are also the thin margins enjoyed by forex traders.
Citicorp Collusion Nets $412 Million in Profits
The absence of supervision by government authorities was notable and banks only reported daily benchmark rates. It must be borne in mind that forex trading generates substantial revenues for banks. In the 6-year spell between 2008 and 2014 forex revenues from ten of the world’s largest banks amounted to as much as $22 billion per annum. Collusion became possible because several of the biggest banks control so much of the market, and working together for their common interests became a priority. Citicorp admitted to wrongdoing and made profits in the region of $412 million at minimum. That figure is substantial, but it pales in comparison to the $1.2 billion generated by the owners of the largest banks. The cartel disempowered traders in the FX markets since they rigged the market.
