Currency Markets Are Rigged
Bloomberg reports today:
Traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice.
Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years.
The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, the two traders said.
The $4.7-trillion-a-day currency market, the biggest in the financial system, is one of the least regulated. The inherent conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges.
While the rates aren’t followed by most investors, even small movements can affect the value of what Morningstar Inc. (MORN) estimates is $3.6 trillion in funds including pension and savings accounts that track global indexes.
As market-makers, banks execute orders to buy and sell for clients as well as trade on their own accounts.
By concentrating orders in the moments before and during the 60-second window, traders can push the rate up or down, a process known as “banging the close,” four dealers said.
Three said that when they received a large order they would adjust their own positions knowing that their client’s trade could move the market. If they didn’t do so, they said, they risked losing money for their banks.
One trader with more than a decade of experience said that if he received an order at 3:30 p.m. to sell 1 billion euros ($1.3 billion) in exchange for Swiss francs at the 4 p.m. fix, he would have two objectives: to sell his own euros at the highest price and also to move the rate lower so that at 4 p.m. he could buy the currency from his client at a lower price.
He would profit from the difference between the reference rate and the higher price at which he sold his own euros, he said. A move in the benchmark of 2 basis points, or 0.02 percent, would be worth 200,000 francs ($216,000), he said.
To maximize profit, dealers would buy or sell client orders in installments during the 60-second window to exert the most pressure possible on the published rate, three traders said. Because the benchmark is based on the median of transactions during the period, placing a number of smaller trades could have a greater impact than one big deal, one dealer said.
Traders would share details of orders with brokers and counterparts at banks through instant messages to align their strategies, two of them said. They also would seek to glean information about impending trades to improve their chances of getting the desired move in the benchmark, they said.
Interest Rates Are Manipulated
Unless you live under a rock, you know about the Libor scandal.
For those just now emerging from a coma, here’s a recap:
- The big banks have conspired for years to rig interest rates … upon which $800 trillion in assets are pegged
- Local governments got ripped off bigtime by the Libor manipulation
- Libor is still being manipulated
Derivatives Are Manipulated
Commodities Are Manipulated
The big banks and government agencies have been conspiring to manipulate commodities prices for decades.
Gold and Silver Are Manipulated
The Guardian and Telegraph report that gold and silver prices are “fixed” in the same way as interest rates and derivatives – in daily conference calls by the powers-that-be.
Oil Prices Are Manipulated
Oil prices are manipulated as well.
Everything Can Be Manipulated through High-Frequency Trading
Manipulating Numerous Markets In Myriad Ways
The big banks and other giants manipulate numerous markets in myriad ways, for example:
- Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here and here
- Charging “storage fees” to store gold bullion … without even buying or storing any gold . And raiding allocated gold accounts
- Committing massive and pervasive fraud both when they initiated mortgage loans and when they foreclosed on them (and see this)
- Pledging the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car
- Cheating homeowners by gaming laws meant to protect people from unfair foreclosure
- Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this
- Engaging in unlawful “frontrunning” to manipulate markets. See this, this, this, this, this and this
- Charging veterans unlawful mortgage fees