Lessons Learned from Bank Forex Manipulation Fallout


UBS Bank

UBS Bank

In an unprecedented move regulators from both the UK and the United States levied fines totaling almost $6 Billion on some of the world’s most recognized names in banking. These include Citibank, JP Morgan Chase, Barclays and The Royal Bank of Scotland. Some of these institutions have pleaded guilty to market rigging and collusion.  In its simplest terms, the banks acted as a “cartel” setting prices in the Forex market that would benefit each other and would be costly to the Banks Clients.

In the Interbank Market, these events outline one of the biggest negatives of a marketplace that are made and managed by market participants themselves. Instead of performing their main function of maintaining a fair and equitable marketplace these players decided to manipulate and take advantage. The fact that many have had to admit guilt may finally lead to some change and may allow standards to be set. When the NYSE experienced issues with its specialist system favoring Institutions over retail clients. Rules were put in place to make sure that the specialist could not favor these types of orders or these types of clients. The rule said that orders that were under 100 shares were to be given priority over other orders so the institutions that were coming in with orders of 10,000 or 100,000 shares would not have any advantage.

A similar result may come from these events in that banking regulators may step in and establish that a fair and equitable marketplace be maintained in the interbank market. Over the years the retail component of Forex has continued to grow. It is important the market makers and liquidity providers fairly serve and integrate the retail traders. This may also be done with technology and more market transparency as well. Banks serve a very important role as liquidity providers. If as the head of Citibank says not part of their corporate culture to do what they have admitted to then change needs to happen sooner than later.


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