Global Currency Traders May Be Fixing The '4pm Fix

Sent: Sat, Feb 1, 2014 12:01 pm
Subject: Global Currency Traders May Be Fixing The '4pm Fix

​Global Currency Traders May Be Fixing The '4pm Fix

Carol Green/Flickr

by Christopher Werth

January 30, 2014 - 7:24pm

STORY

Unlike the stock market’s closing bell at the end of the day, the trade in 

currency operates around the clock. And since there’s no end-of-the-day 

benchmark, the foreign exchange market draws a line in each day’s trading at 4 

p.m. London time.

Joe Marston, a small-time, retail foreign exchange trader, says whatever 

exchange rates happen to be within a 60-second window become what’s known as the 

"4 p.m. Fix."

"The 4 p.m. Fix was devised so everybody around the world knows what the price 

is at 4 o’clock," says Marston. "So that’s the benchmark."

It’s an important benchmark. Multinational companies and pension funds use it as 

a price to make enormous foreign currency deals.

And regulators suspect traders may have rigged the 4 p.m. Fix to make more 

profit.

Here's how it works:  On a quiet trading day, Marston shows on his computer 

screen that the Euro hovers at about $1.35 in U.S. dollars.  But just moments 

before the 4p.m. Fix was set, the numbers on Marston’s screen start to tick 

upward.

"It’s moving up a little bit," says Marston. "Sometimes the market can actually 

move quite violently a few minutes before."

That movement has attracted the attention of U.S. and European regulators.

"Round about exactly 4 p.m., there appear to be jumps in the exchange rate that 

disappear after a few minutes," says Mark Taylor, a former currency trader who's 

now dean at Warwick Business School. Taylor says if you look at the 4 p.m. Fix 

over several months, you see a very suspicious pattern. 

"What it suggests is that people are deliberately trying to manipulate the 

market around that time."

Traders at some of the world’s largest banks are suspected of collaborating 

through online chat rooms with names like "The Cartel" and  "The Bandits’ Club," 

and they’re believed to have conspired to combine billions of dollars in trades 

to shift the 4 p.m. Fix. It’s what’s known in trader-speak as "Banging the 

Close".

"It suggests that you’re banging something in order to move it," says Taylor. 

"And you’ve only got to move the market a small amount for a small period of 

time for that to translate into literally millions of dollars of profit."

Taylor says the concern is that banks make their profits by charging clients the 

higher 4 p.m. Fix rate, while really putting currency trades through at a lower 

price once the market settles down. Richard Payne at Cass Business School says, 

for the moment, these are just allegations. But this is possible, he says, 

because the global currency market is largely unregulated, and concentrated 

among a handful of players.

"There are only a few big banks that control the vast majority of currency 

trading on the planet, says Payne, "and we can all name them – Deutsche Bank, 

Barclays, UBS."

That list includes Citigroup and JP Morgan. No bank would comment for this 

story. But many have already suspended their top currency traders as 

investigations continue.  And any proof of wrongdoing could bring steep fines.