The world’s biggest banks have been manipulating benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to a Bloomberg investigation.
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 five 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 and all investments.
The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, according to a person briefed on the matter.
Informed observers have long warned that the global $4.7-trillion-a-day foreign exchange market, the biggest in the financial system has all the hallmarks of a casino.
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.
The FCA already is working with regulators worldwide to review the integrity of benchmarks, including those used in valuing derivatives and commodities, after three lenders were fined about $2.5 billion for rigging the London interbank offered rate, or Libor. Regulators also are investigating benchmarks for the crude-oil and swaps markets.
“The price mechanism is the anchor of our entire economic system,” said Tom Kirchmaier, a fellow in the financial-markets group at the London School of Economics. “Any rigging of the price mechanism leads to a misallocation of capital and is extremely costly to society.”
The benchmarks are based on actual trades or quotes, rather than the bank estimates used to calculate Libor. Still, they’re susceptible to rigging, according to the five traders, who said they had engaged in or witnessed the practice.
The traders interviewed by Bloomberg News declined to identify which banks engaged in manipulative practices and didn’t specifically allege that any of the top four firms were involved. Spokesmen for Deutsche Bank, Citigroup, Barclays and UBS declined to comment.
It is becoming increasingly evident that many key financial markets are being rigged and manipulated by banks and central banks today. Some of the manipulation is overt, some is covert.
The world’s largest banks are fixing prices in many key markets and benchmarks which is affecting the value of money itself and will ultimately leading to the value of money in your pocket becoming worth much less.
It is distorting markets and leading to a false sense of security and unwarranted and dangerous risk appetite.
It leads to a heightened risk of market dislocations, market crashes and monetary crisis. It could also lead to the much anticipated default on the COMEX as more and more nervous investors, individual and institutional, opt to take delivery of physical bullion.
This makes owning physical gold in your possession or in a vault that you can ship from at will more vitally important than ever before.
Gold In British Pounds, 3 Year – (Bloomberg)
Comex, Nymex Gold Delivery Issues, Stops for June 11
The following is a table detailing daily issues and stops related to deliveries of gold against expiring contracts traded on the Comex or the New York Mercantile Exchange for June 11, according to CME Group Inc.
The notices reflect the movement of metals to offset each long or short futures position with supplies held in exchange-monitored warehouses. Issuers are making deliveries, and stoppers are taking deliveries.