The Cartel & the Bandits Game
As more details emerge about the alleged manipulation of foreign exchange rates for the WMR 4pm daily Fix by certain members of the trading community the story has seemingly changed from one of outright denial to one of authorities doing everything they can to investigate any wrongdoing.
As Bloomberg reported back in June the case for any wrong doing seemed negligible as the WMR fix is a daily occurrence and one in which substantial amounts of foreign exchange in a multitude of currencies get transacted in the hope of a “best execution” benchmark for various clients ranging from asset managers to pension funds.
Rumors abounded about the existence of a chat-room called “The Bandits Club” or “The Cartel” in which the lead principals would exchange exact details of clients positions and pending orders and would thereby lead to “fix” the fixing rate by propositioning themselves.Whilst much of this can be explaining by the age old habit of traders lining up buyers and sellers and gauging liquidity its the precise timing and execution with any alleged collusion that is the source of angst for regulators.Any attempt to manipulate the rate at 4pm or deriving to profit would not be looked on favorably and would require a fair amount of investigation to prove malice and intent and indeed collusion.Its no surprise that the banks that are allegedly involved have placed their traders on “special leave” pending investigation looked into the internal chats of one of their traders, Richard Usher and concluded that perhaps he had revealed too much of clients orders and positions.
Usher who left RBS for JP Morgan in 2010 has now been placed on leave indefinitely whilst regulators look into his conduct.The banks are forthright in their claim that none of the traders have been accused of any wrongdoing and are merely cooperating with the authorities as best they can.After the LIBOR debacle where authorities were seen to drag their feet it seems that this time round perhaps they are more forthcoming.
The case has worldwide repercussions as UBS recently cut trading staff in Zurich and New York in light of investigations by the Swiss Monetary Authority into the same claims and this week Deutsche Bank also announced that it is holding its own review into the matter.The main participants are traders from JP Morgan, Barclays, Citicorp,UbS AG.Its understood that Matt Gardiner and Rohan Ramchandani from Standard Chartered and Citicorp respectively are both on leave as well.If LIBOR is anything to go by the leave could be an extended one.