The FX is in
 She may have been robbed
IT HAS been a dreadful couple of years for financial benchmarks. Banks
turn out to have rigged LIBOR, an used to peg contracts worth trillions.
Its equivalent in the world of derivatives, ISDAfix, has also come under
question. from crude oil to platinum have been the subject of allegations
and inquiries. Now prices in global , where turnover is $5 trillion a day,
are being scrutinised by authorities, who suspect bankers have tampered
with those too.
Switzerland’s financial watchdog announced on October 4th that it was
investigating a slew of banks it thinks have manipulated currencies.
Britain and the European Union also have probes under way. None has
detailed its suspicions, but concerns reportedly centre around abnormal
movements ahead of a widely-used daily snapshot of exchange rates, known as
the 4pm “London fix”. It represents the average of prices agreed during 60
seconds’ trading, and is used as a reference rate to execute a much larger
set of currency deals. Bankers, who are big participants in the market,
have huge incentives to nudge the price of a given currency pairing ahead
of the fix. With billions of dollars changing hands, a difference of a
fraction of a cent can add a tidy sum to the bonus pool.
If proven, the charge would amount to banks fleecing their clients.
Banks know the big trades they are about to execute on others’ behalf, and
are often themselves the counterparty. By moving the markets ahead of the
fix, they could alter the rate to their profit and their clients’ loss. One
suspected method is “banging the close”: submitting a quick succession of
orders just as the benchmark is set, to distort its value. Though
indicators based on real trades are meant to be harder to game than those
using hypothetical figures (such as LIBOR, a daily poll of banks’ estimated
borrowing rates into which respondents fed duff data), they are clearly not
incorruptible.
The 4pm fix is used to calculate the value of all sorts of assets, such
as the foreign holdings of . Fiddling the rates could thus have an impact
far beyond the banks and their clients. Worse, if the bankers talked to
each other ahead of their trades, as regulators think they may have,
collusion will be added to the charge sheet. Investigations into other
fiddled benchmarks have unearthed reams of messages between traders
blithely discussing their swindles.
The risk of manipulation could be vastly diminished by using a benchmark
that relies on more than just 60 seconds of trading, points out Mark
Taylor, dean of Warwick and a former currency-fund manager. The damage to
implicated banks’ reputations will be harder to fix.
|
Visit stage2omega at: http://www.stage2omega.com/?xg_source=msg_mes_network
To
control which emails you receive on stage2omega, click
here
|
No comments:
Post a Comment