Is forex market controlled by someone? - page 29
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New York Fed Faulted in ‘London Whale’ Case
The Federal Reserve Bank of New York failed to examine J.P. Morgan Chase & Co.’s investment unit ahead of the bank’s 2012 “London Whale” trading debacle, despite a recommendation from other Fed supervisors that they look at the unit involved in the trades, according to a new report.
The Fed’s Office of Inspector General released a four-page summary of a yearslong investigation on Tuesday, saying Fed supervisors didn’t follow up on signs that the bank’s chief investment office—where the traders engaging in the problematic derivatives transactions were based—needed a closer look. A team of experts from across the Fed system recommended the New York Fed conduct “a full-scope examination” of the J.P. Morgan unit in 2009, but the regulator never did, the report said.
In 2012, J.P. Morgan announced losses in the unit related to botched derivatives trades that eventually cost the bank $6 billion.
The inspector general found that the New York Fed’s planned exam never went off “due to many supervisory demands and a lack of supervisory resources,” weaknesses in planning procedures, and the loss of “institutional knowledge” after a 2011 reorganization of the team supervising J.P. Morgan, according to the report. Fed examiners also failed to tell another regulator, the Office of the Comptroller of the Currency, of its desire for a deeper look at the J.P. Morgan unit in 2009—despite prior agreements between the agencies to work together, the inspector general said.
The report is the latest black eye for regulators, who continue to be criticized for failing to spot—and prevent—problems at financial institutions even after the financial crisis revealed a lack of regulatory oversight. The New York Fed, in particular, is already on the defensive after the recent disclosure of a 2009 internal report finding that its supervisors were too reluctant to criticize Wall Street, hindering its ability to spot and eradicate problems.
The OCC, which oversees J.P. Morgan’s main banking subsidiary, was taken to task by Senate investigators in 2013 for failing to notice warning signs about the “Whale” trades—so-named for a J.P. Morgan employee in London who built up the giant positions. The bank stopped sending key reports to the OCC, and the regulator “tolerated bank reports that omitted portfolio-specific performance data,” the Senate Permanent Subcommittee on Investigations said in March 2013.
The inspector general stopped short of saying the New York Fed could have stopped the London whale trades before they contributed to such big losses, saying it can be difficult for examiners to detect problems at banks before they emerge. “We cannot predict whether completing any of those examinations would have resulted in an examination team detecting the specific control weaknesses that contributed to the” losses from the “Whale” trades, Tuesday’s report said.
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FX Traders’ Facebook Chats Said to Be Sought in EU Probe
Foreign-exchange traders’ messages on Facebook Inc. (FB) are being sought by European Union antitrust regulators as they expand a probe into alleged collusion between banks beyond work e-mails and instant messages, two people with knowledge of the case said.
Banks have been asked to supply all communications between traders, including social media, said three people who didn’t want to be named because the EU’s requests are private. The EU suspects that some e-mails and online messages have been erased to destroy signs that traders were illegally swapping information, one of the people said.
Chats between traders of products linked to the London and euro interbank offered rates provided key evidence for global probes that have fined banks more than $6 billion to date. One trader offered to pay a broker “whatever you want” to keep the yen Libor rate “as low as possible,” according to excerpts released by U.K. and U.S. regulators in 2012.
“It’s a very important case because the forex markets every day exchange billions and billions of euros,” EU antitrust chief Joaquin Almunia told Bloomberg TV last month. Regulators have got “some contributions from people that warned us of the possibility of collusion,” he said.
Not all banks involved in the EU’s probe into foreign-exchange rates have been asked to supply more details of communications between traders outside of work e-mail and instant-messaging services, according to three other people with knowledge of the EU’s currency-rigging case.
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UBS misses profit estimates after $1.9bn legal provision
Switzerland's biggest bank, UBS, has missed profit estimates after it set aside $1.9bn (£1.2bn) in legal provisions amid an investigation over alleged currency-rigging.
Net income rose by 32% to 762m francs (£498m) in the third quarter, below analyst forecasts for 804m francs.
UBS is in talks with authorities to settle allegations that it colluded in manipulating key rates in the $5.3tn-a-day foreign exchange market.
However, it has yet to reach a deal.
Both UK and US regulators are also said to be investigating other lenders, including JPMorgan and Barclays.
"We are actively addressing litigation and regulatory matters," UBS chief executive Sergio Ermotti said in the bank's quarterly report.
UBS also said it expected legal and regulatory charges to remain "elevated for the foreseeable future" because of the "current regulatory and political climate affecting financial institutions".
The Swiss bank had warned last month it could face "material monetary penalties" because of the currency-rigging investigation.
It has already paid about $3.6bn in penalties since 2012. Among other things, it has been accused of helping wealthy clients avoid taxes.
UBS shares traded in Zurich have lost nearly 9% of their value this year.
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Fast Traders Are Getting Data From SEC Seconds Early
Hedge funds and other rapid-fire investors can get access to market-moving documents ahead of other users of the Securities and Exchange Commission’s system for distributing company filings, giving them a potential edge on the rest of the market.
Two separate groups of academic researchers have documented a lag time between the moment paying subscribers, including trading firms, newswires and others, receive the filings via a direct feed from an SEC contractor and when the documents are publicly available on the agency’s website.
The studies found a wide variation in the lag time, from no delay to one lasting more than a minute—a considerable advantage for computer-driven traders. The ability to get the information before it is on the SEC site can give traders precious seconds to act on the news.
When documents carrying good or bad news reach the subscribers early, trading volume often surges in the relevant stocks and prices move, the researchers found. The findings suggest the regulator’s own system is giving professional traders an edge over mom-and-pop investors, the studies’ authors say. “These results raise questions about whether the SEC dissemination process is really a level playing field for all investors,” wrote Jonathan Rogers of the University of Colorado, who co-authored an Oct. 22 study that analyzed the SEC’s distribution system.
The studies are the latest indication that some superfast, sophisticated trading firms are enjoying an advantage over other investors, echoing previous cases in which high-frequency traders received corporate news releases or key data on the U.S. economy milliseconds before competitors.
The findings could be a headache for the SEC, whose mission is to protect all investors. Regulators are trying to ensure high-frequency traders, who use computers to analyze company filings and execute trades in milliseconds, don’t receive an unfair timing advantage over other investors. In February, The Wall Street Journal reported that such traders were getting early delivery of corporate news releases from Business Wire, which distributes corporate news. Following the article, the New York attorney general’s office pressured the wire service to stop the practice, the Journal reported. A Business Wire executive later said in a statement that the company would “no longer allow high-frequency trading firms to license direct feeds.”
“We have reviewed the working paper and are taking the issues raised by it seriously,” an SEC spokeswoman said, referring to the study by Mr. Rogers, who partnered with two University of Chicago professors on it. “We are conducting a thorough assessment of the dissemination process, including timing increments, and will make any systems modifications that may be necessary to optimize the dissemination of information to investors and the markets.”
The timing discrepancy can be seen in trading in Balchem Corp. , a New Hampton, N.Y.-based chemicals company. On Nov. 9, 2012, a corporate insider filed a form disclosing the purchase of 6,000 shares of the company’s stock. Some direct-feed subscribers received the filing at about 1:45:25 p.m. Eastern time, several seconds before at least two newswire services, including Dow Jones & Co., distributed the filing, according to people familiar with the data.
At about the same time as the direct feed was delivered, trading volume in the company jumped and the price of the stock rose from about $31.90 a share to $32.13 a share. The same information was posted to the SEC’s website at 1:45:48 p.m., according to the people familiar with the data. That was after the price jumped.
Two sets of researchers have been examining when paying subscribers receive SEC filings compared with when they become available on the agency’s website. The study from the researchers at the Universities of Colorado and Chicago examined Form 4 filings—which detail stock sales or purchases by corporate insiders—and found that, when subscribers got those documents first, trading volumes and stock prices would react. Another forthcoming study from Columbia University looks at filings more broadly and documents a similar phenomenon, according to those researchers, who say it will be published soon.
The studies focus on the SEC’s Electronic Data Gathering, Analysis and Retrieval system, or Edgar, which was launched in the 1990s to disseminate earnings reports and other documents filed to the agency. Investors know Edgar as the name on the website they visit to retrieve public filings.
When a company submits a document, the contractor forwards it to the Edgar subscribers and to the SEC website “at the same time,” according to the SEC. But the studies suggest that the SEC website can take anywhere from 10 seconds to more than a minute to post the documents, giving an advantage to the Edgar subscribers or their customers, who are often professional investors. Mom-and-pop investors can download the documents from the SEC website, but the information may already be known to others in the market, the studies indicate.
“There has not been a day in financial markets when a minute didn’t matter,” said Prof. Robert Jackson of Columbia Law School.
Mr. Jackson subscribed to the SEC’s data feed and found that, over a two-month period, the median delay between when he received filings and when they were posted on the SEC website was 10 seconds.
Mr. Jackson says a forthcoming paper will document that investors could make about several cents a share, on average, on market-moving filings by receiving it in advance of those who rely on grabbing the document from the SEC website. When he told friends on Wall Street, they said he should execute the strategy and retire. “Why would you write a paper? Buy a house in the Hamptons,” he says they told him.
The paper co-written by Mr. Rogers sampled 4,782 disclosures about a corporate insider buying stock in his own company—typically a bullish event for a stock. The researchers obtained data from a subscriber who voluntarily provided information about when it received the documents and when they were available on the SEC site. In 57% of those cases, the subscriber received the information before it was publicly available.
Mr. Rogers’s paper, which looked at corporate-insider trades from March 2012 through December 2013, found that, when subscribers got the information early, stock prices and volumes moved as well.
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A Glimpse Inside The FX "Cartel's" Chat Rooms
First it was Libor, then gold, then dark pools, now for those who want a glimpse into just how for years bank FX traders, whether belonging to "The Cartel" or "The Bandits Club" or otherwise, colluded on trades around the daily fix, breached fiduciary duty, and generally engaged in illegal rigging of the world's largest market by volume, Bloomberg News had received a transcript of the instant-messages by various FX traders currently being investgated for FX rigging.
As Bloomberg news reports, it has "reviewed the transcript of a conversation that spanned about 40 minutes on the condition that neither the traders nor clients named in them would be identified. Another dealer from Barclays and two from Zurich-based UBS AG were logged onto the thread at various points during the chat. The exchanges are the sort of discussions banks are trying to end by banning group chats involving employees at other companies."
Here is glimpse into how yet another market was, and still is, rigged on a daily basis.
“Any fix quid?” a currency trader at Barclays Plc asked a counterpart at HSBC Holdings at 2:25 p.m. on June 23, 2011. “Get 50 cable on fix,” he said as he tried to sell British pounds.
“Nothing as of yet mate,” replied the HSBC trader, according to a transcript of the “Sterling Lads” instant-message group provided to Bloomberg News by a person with knowledge of a global investigation into alleged currency-rate rigging. “I hope not either, as everything I touched today has cost me money. I just lost 10k there typing.”
And that is how FX is "traded" these days.
More can be found here, but the real question we have is how many, if not all, of the abovementioned anonymous "traders" were part of the alleged, if legendary, Sage Kelly "Defendant's Drug Cohorts."
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RBS takes $640 million forex charge and warns of more to come
State-backed Royal Bank of Scotland (L:RBS) has set aside 400 million pounds ($640 million) to cover potential fines for manipulating currency markets and warned further charges for past misconduct would continue to hit its profits.
RBS, 80 percent owned by the British government following a 45 billion pound bailout during the financial crisis of 2007 to 2009, on Friday joined other big rivals in signaling it is close to agreeing settlements over alleged manipulation of the $5.3 trillion-a-day foreign exchange market.
Rival Barclays (L:BARC) said on Thursday it had set aside 500 million pounds to cover potential FX fines, while JP Morgan (N:JPM), UBS (VX:UBSN) and Citi (N:C) have also set aside large sums.
The forex manipulation, revelation of which came after banks were already under scrutiny for profiteering in the setting of benchmark lending rates such as Libor, relates to daily fixing rates which traders are alleged to have manipulated to suit their own market positions.
RBS also faces a number of other probes relating to past misdeeds which threaten to undermine its turnaround under Chief Executive Ross McEwan, who has steered the bank back into profit this year after it made a loss of 8.2 billion pounds in 2013.
"We are actively managing down a slate of significant legacy issues. This includes significant conduct and litigation issues that will continue to hit our profits in the quarters ahead," McEwan told reporters on Friday.
RBS is being investigated by regulators looking into its selling of bonds backed by residential mortgages in the United States and its treatment of struggling small British firms. The bank is also expected to be fined by British financial regulators for an IT failure two years ago which left customers without access to their bank accounts.
In addition, RBS faces a mounting bill to compensate customers mis-sold loan insurance. It set aside another 100 million pounds to deal with the matter on Friday, taking its total bill to 3.3 billion pounds.
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Banks Set Aside $2.7 Billion on FX as Settlements Near
Royal Bank of Scotland Group Plc yesterday set aside 400 million pounds ($639 million) for the foreign-exchange probes. HSBC Holdings Plc (HSBA) will set aside about the same amount when it releases third-quarter earnings on Nov. 3, a person with knowledge of the matter said, asking not to be identified as it hasn’t been announced.
Citigroup Inc. (C) took a $600 million legal charge on Oct. 30 as it said it is involved in “rapidly evolving regulatory inquiries and investigations.” Barclays Plc (BARC) set aside 500 million pounds the same day for resolving the foreign-exchange investigations.
All four are in settlement talks with the U.K. Financial Conduct Authority, people with knowledge of the discussions have said. Authorities on three continents have been looking into allegations that traders at some of the world’s largest banks used instant-message groups to share information about their positions and client orders to rig the $5.3 trillion-a-day foreign-exchange market. Some U.S. authorities are also in talks, and charges against a bank could come by the end of the year, according to people with knowledge of the matter.
Increasing Provisions?
Banks are restricted by accounting rules to setting aside reserves only where they have “reasonable line of sight” as to the likely costs, according to Gary Greenwood, an analyst at Shore Capital Group Ltd. in London. “I suspect FX provisioning levels will require increasing further,” he said.
The FCA is also in discussions with JPMorgan Chase & Co. (JPM) and UBS AG, with agreements expected this month, people familiar with the negotiations have said. U.S. bank regulators at the Federal Reserve and Office of the Comptroller of the Currency are also in settlement talks with some of the same banks, such as JPMorgan, Citigroup, and HSBC, as well as Morgan Stanley and Bank of America Corp.
The U.S. Commodity Futures Trading Commission is trying to settle its cases at the same time as the FCA, though it’s unclear whether the U.S. regulator will be able to wrap them up that quickly, according to three people with knowledge of the matter.
Spokesmen for HSBC and the FCA, Federal Reserve, OCC, CFTC and Department of Justice declined to comment.
The HSBC provision was reported earlier by the Financial Times.
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JPMorgan Faces U.S. Criminal Probe Into Foreign-Exchange Trading
JPMorgan Chase & Co. (JPM), the biggest U.S. bank, said it faces a U.S. criminal probe into the firm’s foreign-exchange business and increased the upper end of its “reasonably possible losses” related to legal matters.
The lender is cooperating with a criminal investigation by the Justice Department as well as inquiries by the Commodity Futures Trading Commission and regulators in Britain and elsewhere, the New York-based company said today in a regulatory filing. Reasonably possible losses could be as much as $5.9 billion, the bank said, an increase of $1.3 billion since the end of June.
“These investigations are focused on the Firm’s spot FX trading activities as well as controls applicable to those activities,” according to the filing.
Banks are facing probes by authorities on three continents over alleged rigging of currency markets, people with knowledge of the situation have said. Citigroup Inc. and Zurich-based UBS AG disclosed last week that they also face criminal inquiries by the Justice Department into their foreign-exchange businesses. Citigroup restated third-quarter results to include a $600 million legal charge.
Legal expense at JPMorgan in the period was $1.01 billion, tied “in large part” to the currency investigations, Chief Financial Officer Marianne Lake said on Oct. 14. The currency probes could cost banks as much as $41 billion to settle, analysts at New York-based Citigroup, led by Kinner Lakhani, said last month.
JPMorgan shares have gained 4.1 percent this year, trailing the 9.3 percent advance for the 85-company Standard & Poor’s 500 Financials Index.
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As far as I know, each country has their own rules and regulation for forex trading in it. So, I want to know, there is any organization, agency or authority which makes rules and regulation for world-wide forex trading.
I think trader can`t control this market. But Broker may play important role in this regard.
UK prepares forex fines for six banks on Wednesday -sources
British regulators investigating allegations of collusion and manipulation in the foreign exchange market could fine a group of six banks as early as next Wednesday, people familiar with the matter said.
The six banks are Switzerland's UBS, U.S. banks JP Morgan and Citigroup and Britain's HSBC, Barclays and Royal Bank of Scotland, sources said. They are expected to be fined a total of about 1.5 billion pounds ($2.37 billion).
It would be the first settlement in the year-long global probe into the $5.3 trillion-a-day foreign exchange market. Around 35 traders have been suspended or fired by their banks. No individual or institution has so far been accused of any wrongdoing.
A group settlement could be appealing to the banks, after Barclays in 2012 was singled out as the first bank to settle with regulators over a global investigation into the rigging of benchmark interest rates.
Three sources said the Financial Conduct Authority (FCA) was working to release the coordinated settlement with the banks on Wednesday, although they said that timetable could slip if problems emerge with details.
The regulator said there was no date confirmed for any settlement. JP Morgan could not be immediately reached for comment, and the other five banks all declined to comment.
U.S. regulators are also working towards a settlement. The U.S. Commodity Futures Trading Commission could announce a settlement with a group of banks around the same time, one U.S. based source said.
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