Another fine mess

IFR 2060 22 November to 28 November 2014
5 min read

ON MONDAY, I received a call from a dear old friend in New York who was heading over to London and who wanted to meet for a coffee or for lunch. The lady in question, a foreign exchange sales executive of 27 years standing, had recently become yet another victim of the lack of volatility and volume in the forex markets.

There was no bitterness. 27 years isn’t a bad innings in anybody’s book and I got the impression that she might be, in her own very quiet way, grateful that her employer had called time for her. It’s a big old world out there and knowing what dollar/yen is doing 24/7 might not be all it’s cracked up to be.

We met at a cafe in the City where we sat in the autumn sunshine with another old mate, himself an MD in forex sales with one of the big houses facing fines for price fixing. The latter talked a bit about the mood on the floor, the confusion that reigns – and the fact that the bonus pool now belongs to the US Commodity Futures Trading Commission and the UK’s Financial Conduct Authority.

Just because we speak to each other does not mean that we spend our time colluding and scheming

OUR ACTIVE FOREX salesman was wondering how long it will be before the authorities begin to investigate the sales desk. Although voice traffic still exists, chat lines such as Thomson Reuters’ RM or Bloomberg’s IB carry most of the important dealing traffic, which gives investigators a reasonably clear audit trail.

That they may not understand the banter between players need not be said. The fact is that price formation is driven by information.

Just as politicians formulate their policies and their plots via focus groups, town hall meetings and opinion polls, so the City is a buzz of information and the best players are the ones with the best sources.

Most of all, though, we speak to each other. Most of us have worked in three, four or even five houses through our career. In doing so we have shared desks with hundreds of others and formed friendships and loyalties. But just because we speak to each other does not mean that we spend our time colluding and scheming as to how we are going to skin little old ladies and their pension funds.

The more free and frank exchanges of information are restricted, the greater the chance for market manipulation on electronic platforms as traders and investors can see “the what” but cannot gain information on “the why”.

Those members of Citigroup’s European guvvie desk proved to us in 2004 (via the so-called Dr Evil trade) how easily that is done – but instead of being hailed as whistle-blowers, they were pilloried and fined.

COULD A SALESMAN who props an idea to a client possibly be accused of mis-selling if it can be shown that the trader was asked to sell the investment and the trade subsequently went wrong? That might sound far-fetched but somewhere there has to be a line between what is a legitimate idea that has gone wrong and a malevolent stuffing.

Some big cases of selling investments structured to fail have already come to light and I would not put it past the authorities to go looking for other possible misdemeanours.

Let’s face it, the ever-growing oversight machine has been funded by the easy money generated from fining banks. And the beast will continue to need feeding.

Please don’t get me wrong. There is clearly no question that the fixing of forex was wrong, but in the context of the immense flow of business which goes through the market on any given day, it is one drop of poison in a large lake.

I was once told by a lecturer in criminal law that the 20th Century, by way of road traffic legislation, has turned every single one of us into criminals. In the same way regulatory rhetoric is treating all of us in the financial services sector as though we were colluding partners in mis-selling, corruption, market abuse, insider trading, price-fixing, breach of fiduciary responsibility and, finally, the non-criminal offence of reckless shuffling of money and blind greed.

True, we do get paid more than other sectors. True, many of us suffer from the totally mistaken belief that we are worth what we get paid.

The days when it was potent Essex boy versus innocent Aunt Agatha are over. Institutional clients are equally ruthless and just as good at painting pictures and creating false markets.

Should my FX friend, rather than asking when sales teams are up for public humiliation, be wondering what will happen when the spark jumps the divide and sets fire to the buyside? And now we have the answer as to where the fine-based funding for the oversight industry might next come from.

Anthony Peters