Bloomberg Businessweek: Bloomberg View: How to Stop the Rate-Riggers

The following is an excellent article from the November 17 – November 23, 2014 issue of Bloomberg Businessweek on page 12 titled “Bloomberg View: How to Stop the Rate-Riggers” and I quote:

“Bloomberg View”

“How to Stop the Rate-Riggers”

November 13, 2014

Martin Wheatley, chief executive of the U.K.’s Financial Conduct Authority

Photograph by Matthew Lloyd/Bloomberg

Martin Wheatley, chief executive of the U.K.’s Financial Conduct Authority

Regulators in the U.K., the U.S., and Switzerland have moved with impressive speed to extract about $4.3 billion from some of the world’s largest banks for their role in rigging global currency markets. Now comes the hard part: identifying and punishing the people who actually did it and stopping it from happening again.

The settlements with six banks—UBS (UBS), Citigroup (C), JPMorgan Chase (JPM), Bank of America (BAC), Royal Bank of Scotland (RBS), and HSBC Holdings (HSBC)—paint a depressingly familiar picture. Foreign exchange traders profited at their clients’ expense by abusing information about orders, and they conspired to influence London-based benchmarks that affect decisions and transactions worldwide. The transgressions went on from 2008 through late 2013, persisting even as some of the same banks were reaching settlements over the rigging of the London interbank offered rate, or Libor.

Details presented by regulators illustrate just how commonplace the manipulation had become. Traders formed groups—with names such as “the 3 musketeers” and “the A-team”—that focused on specific currencies. Using private chat rooms, they shared information about their clients’ orders with the aim of pushing the WM/Reuters benchmark exchange rates, set at 4 p.m. London time, in the desired direction. “Hooray nice team work,” one trader wrote after an attempt to “whack” the British pound.

Two changes would raise the odds of deterrence. First, regulators should routinely screen markets for suspicious activity. Simple statistical analyses were all journalists needed to see that something was amiss in both currencies and interest rates.

Second, benchmark rigging should be a crime in itself. Its repercussions extend far beyond the traders involved, undermining confidence in markets that play a crucial role in the global economy.

The foreign exchange case illustrates that good market design alone doesn’t prevent rigging: The currency benchmarks already met guidelines that were created in the wake of the Libor revelations. Regulators also need to pay attention, and prosecutors need laws to enforce.

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About tim074

I'm a retired dairy farmer that was a member of the National Farmer's Organization (NFO). Before going farming, I spent 4 years in the United States Air Force where I saved up enough money to get my down payment to go farming. I also enjoy writing and reading biographies and I write about myself as well as articles and excerpts I find interesting. I'm specifically interested in finances, particularly in the banking industry because if it wasn't for help from my local Community Bank, I never could have started farming which I was successful at. So, I'm real interested in the Small Business Administration and I know they are the ones creating jobs. I have been a member of Common Cause and am now a member of Public Citizen as well as AARP. I have, in the past, written over 150 articles on the Obama Blog (my.barackobama.com) and I'd like to tie these two sites together. I'm also on Twitter, MySpace and Facebook and find these outlets terrifically interesting particularly what many of these people did concerning the uprising in the Arab world. I believe this is a smaller world than we think it is and my goal is to try to bring people together to live in peace because management needs labor like labor needs management. Up to now, that hasn't been so easy to find.
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