Number-crunching the FX fixing fines

Behind the numbers in the FX fixing scandal, which represented a "brazen 'heads I win, tails you lose' scheme", according to New York State superintendent of financial services Benjamin Lawsky.

0   Transaction costs paid by users (e.g., customers) of the fix to ensure getting filled at a rate unknowable in advance on potentially unlimited size

0   Allegations of wrong-doing levied against some senior FX traders at banks not involved in the recent settlement, who have nevertheless been suspended from their jobs for more than a year

0   Charges of currency manipulation against sovereign authorities who, in the not-too-distant past, used to execute orders aggressively in pairs not involving their home currency, in order to move the price

0   Amount of the fine, as far as Macro Man can determine, paid by the Hildebrand family after Mrs. Hildebrand cleared CHF 75,000 on a PA trade when Mr. Hildebrand implemented the 1.20 floor in EUR/CHF

1  Price, in pennies, that some HFT donut sold Accenture at during the Flash Crash

1   Number of electronic trading entities charged with wrongdoing in relation to the Flash Crash

1   Losing days out of 1,238 that HFT firm Virtu Financial admitted to losing money in its IPO prospectus last year

5   Banks fined by US, UK, and Swiss authorities

5,700,000,000   Fine, in dollars, levied against these banks

n + 1  The equilibrium number of regulators to claim jurisdiction and levy a fine, relative to the number who have already done so

countless  The number of entities harmed by the FX fix, according to the US Attorney General.   This is possibly because the authorities have not attempted to count or quantify the actual cost to society, thus rendering the analysis literally count-less

Listen, no one is saying that everyone involved was a white knight, because they weren't.   But amongst industry practitioners, it was understood that the minute or two around the fix was Wild West territory, an understanding that existed years if not decades before the period of wrong-doing covered by the settlement.

Moreover, fixings did not systematically skew exchange rates persistently in one direction or another; rather, the impact, insofar as there was one, was simply to shift a given rate a few basis points from where it otherwise would have been for a few minutes, a shift that was usually driven by underlying fixing flow.  The medium-term, let alone long-term, impact of these activities was negligible.

It is therefore bemusing to see regulators use banks as an ATM (geddit?!?!?!) to withdraw cash for behaviour that may seem unsavoury but was at least partially required to ensure that clients were able to get filled at the fixing rate.   Meanwhile, market behaviour that seems substantially worse, and in regulated markets, continues to go unpunished.
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kbong
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May 21, 2015 at 7:40 AM ×

http://www.bloomberg.com/news/articles/2015-05-19/ecb-serves-hedge-fund-diners-qe-treat-most-investors-didn-t-know

here you go...

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Anonymous
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May 21, 2015 at 3:45 PM ×

I got jammed by Russia and Voldemort as they manipulated EUR/USD on EVERY SINGLE DAY between 2006 and middle 2008, then again in middle of 2009-2011...any chance our n+1 number of regulators can sue them too?! ;)

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Anonymous
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May 21, 2015 at 4:25 PM ×

Seems the elites know something and are selling as fast as they can...

http://www.zillow.com/homes/Greenwich-CT_rb/

http://www.zillow.com/homes/for_sale/Scarsdale-NY/pmf,pf_pt/54333_rid/days_sort/41.053531,-73.665819,40.923695,-73.888979_rect/12_zm/

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Mr. T
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May 21, 2015 at 4:32 PM ×

I don't think the regulators will ever see the landscape as industry participants do. Part of that is because of the whole it is difficult to get a man to understand something when his salary depends upon his not understanding it component, but there is also a real missing the forest for the trees aspect to it. I see large swaths of dodd/frank/volker as entirely misguided that would have been better handled by letting institutions fail and shareholders get wiped out. But there is also a human component to this - careers are being made by all sorts of DOJ/AG types and maybe I'm jaded but the last couple rounds seem driven more by aggressive govt than by genuine wrongdoing. This also explains to some degree why market behavior that seems substantially worse, and in regulated markets, continues to go unpunished - that's not the easy path of prosecution.

SZCOMP +92% YTD in dollars. Now *thats* a rally.

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Anonymous
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May 21, 2015 at 11:20 PM ×

Former Fed governor admits Fed has lost all credibility and will cause a major market dislocation:

http://www.zerohedge.com/news/2015-05-21/former-fed-governor-says-fed-lost-credibility-stay-top-ticking-monetary-bomb

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Nico G
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May 22, 2015 at 8:00 AM ×

20 years ago we used to rig equity indices auctions at a big London prop desk - i was young i quit when i realized it was illegal two months later the boyz all lost their license and got sent home

for decades before electronic trading took over, most pit brokers would settle the highest price of the day for a client's buy and the lowest for a sale. The intra day spread was kept on their PA They stole millions from dudes who would not have a clue. In college i was buying stocks through a bank and yeah the execution price was always higher than the close.. i knew nothing and thought bad luck every order hit the pit at the wrong time

everyone cheats, everywhere, until regulators (willingly or less) step in and their next target should be 1) high frequency if they only had the motivation and encourage 2) a mega class lawsuit against the warrants mafia who always charge you 10 vegas upfront that you will never find when you unwind. Volatility always drops when you are right they say... at least you're lucky to not lose all premium they say... you gotta feel for folks who cannot access listed option.

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theta
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May 22, 2015 at 3:26 PM ×

http://www.bloombergview.com/articles/2015-05-21/banks-will-keep-doing-fx-stuff-that-got-them-in-trouble

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Leftback
admin
May 22, 2015 at 8:10 PM ×

Happy US holiday weekend, everyone. This time around, I think we can probably snooze through it without worrying about waking up on Tuesday to a Grexit, Grefault or other form of Graccident. LB is in novel-reading deck chair mode until further notice.

So, VIX < 12, guess it's safe to go in the water without the theme music from Jaws playing in the background.... actually cancel that - if you did go in the water in the NE you'll die of hypothermia.

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Anonymous
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May 22, 2015 at 10:36 PM ×

Today I saw a note from BAML stating that there had been 572 rate cuts since Sept 2008. That is, 1 rate cut every 3 trading days.

I'm not holding my breath that the Fed hike in June.

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Manish Singh
admin
May 26, 2015 at 11:35 AM ×

any comments on this poor chappie not getting his due bonus http://www.theguardian.com/business/2015/may/24/barclays-star-trader-financial-crisis-jonathan-hoffman-lehman-brothers

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hipper
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May 26, 2015 at 8:03 PM ×

So, it's the "shocking revelation" of Grexault (equivalent of default) headlines again pushing EUR/USD, oil and gold down again. Atleast certainly we know it's not due to increasing rate hike expectations.

To be completely honest this is getting boring as hell, so maybe it's just better to throw in a calendar showing the approximate date these things will reverse again, after the grexciting last minute deal is struck and presented to the public. Indeed it's always literally on the last minute innit? Just BTFD for a trade two days before the media circus deadline is hit and you can't go wrong.

http://www.eubusiness.com/news-eu/greece-economy-ecb.115l

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Leftback
admin
May 27, 2015 at 3:12 AM ×

Banana skin, can't see what it is under Mr Market's shoe, but there it is....

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lee woo
admin
May 30, 2015 at 8:15 AM ×

I have always tried to live by the philosophy that when there is a big problem that needs fixing, you should run towards it, rather than away from it. See the link below for more info.


#fixing
www.ufgop.org



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