According to a June 2013 Bloomberg report, the 4:00 PM London “fixing” on the FX exchange was being manipulated by traders who were sharing client order information in online chatrooms.
Just when you think you've seen it all, yet another market-rigging scandal comes along to engulf some of the world's biggest banks. This time it's the foreign exchange markets, which were previously thought to be “too big to manipulate” since they involve $5.3 trillion a day in trades.
Well, it turns out they can be manipulated after all, and now even the Bank of England is being implicated in the widening scandal. The BoE's Joint Standing Committee on Foreign Exchange noted in the minutes of a July 2006 meeting that they had discussed "evidence of attempts to move the market around popular fixing times,” but evidently satisfied themselves that this was being done “by players that had no particular interest in that fix.” The topic was again raised at meeting in 2008 and 2012 before the story broke into the media in 2013.
According to a June 2013 Bloomberg report, the 4:00 PM London “fixing” on the FX exchange was being manipulated by traders who were sharing client order information in online chatrooms. The gears of justice have ground predictably slowly in getting to the bottom of the allegations, with UBS being the first bank to break ranks and provide information on the allegations to the US Department of Justice in hopes of receiving lenient treatment when criminal investigations are launched. So far, the scandal has resulted in the suspension or sacking of 20 dealers from a number of banks including Barclays Plc, Citigroup Inc. and Deutsche Bank AG.
Now the heat is turning up on freshman BoE Governor Mark Carney. He faced questions yesterday from a Treasury Select Committee of the British Parliament over the Bank's role in the affair, alongside BoE Executive Director of Markets Paul Fisher. Fisher argued strenuously that the BoE didn't know about the affair, but it's impossible to square that with the meeting minutes of the bank's currency committee which show otherwise. The session was filled with the usual reassuring blather from Carney:
“This is important to the FX market and to the integrity of the Bank of England. We owe it to the people of this country, to parliament, and to our employees, who have acted with integrity and a spirit of public service. We can’t come out of this with a shadow of doubt about the integrity of the Bank of England”
But ultimately, the Bank of England has suspended one employee over the affair and is still “cooperating” with investigations into its role in the affair.
The Financial Stability Board (set up by the G20 in the wake of the 2008 crash) is now “looking into” the affair and is expected to investigate how the FX markets are being manipulated. But given that Mark Carney is also the Chair of the FSB, don't expect any executive-level heads to roll in this scandal. Instead, like the Libor manipulation scandal and the London Gold Fixing scandal, watch for a wave of suspensions and firings of low-level traders make headlines for a week or two, for inquiries and investigations to drag on for a year or two, and for the entire scandal to gradually fade into the background as if it never happened.