What’s a few milliseconds between friends?

3 mins. to read

By Zak Mir

This is a story, from Friday, about how the financial markets were possibly manipulated, ahead of the FOMC’s non-decision last Wednesday. I actually saw the link posted on Facebook, by a trader friend and did not think about the story too much, until it reappeared on CNBC this morning.

There is no possible excuse for this. Sadly it is just another likely example of the financial cons of our age; zero base rates versus 4% mortgages, PPI, pension rip offs, Libor, the list goes on and on. Now it seems official announcements cannot even be delivered without being leaked first.

On first reading this story, it would seem that the origin of this leak came from a journalist in the supposedly closed room, which receives the announcement before the embargo. Apparently our (phone) hack friends receive the news early in this room, to give them time to write their responses to it. However, it now looks like this arrangement has been compromised, which will come as no surprise to anyone who has seen films like Trading Places or Wall Street. Financial markets have always had the reputation of being a feast for insider traders.

On this basis I now call for the privilege of embargoed price sensitive economic and corporate date to be ended. True, journalists would have to scramble around like headless chickens after news breaks (and do some high pressure work) but welcome to the real world! It would appear that the profession as a whole is no better suited to being entrusted with important data than Gordon Brown was with the UK’s Gold reserves.

But there may be a greater significance to the Fed Milliseconds Fiasco. It once again highlights the questions of what regulators think they are playing at?

In the past, when enforcing their rules, they have tended to go for the big ticket, big publicity, high kudos prizes, such as taking on the big investment banks. The advantage of this is that, innocent or guilty, this plays well to the masses. Who hasn’t enjoyed seeing the London Whale getting harpooned or the CEO of JP Morgan squirming on the evening news?

And don’t forget the fines these cases can result in. Bringing in hundreds of millions of dollars certainly won’t do harm to the careers of certain bureaucrats, not to mention the PR.

Sadly, as we have seen all too often, the process of regulation is even more arduous than trying to repair a punctured dinghy in a Force 9 gale.

As for the general public, don’t think for a second these fines benefit us. I haven’t heard of JP Morgan trimming back on their wage bill to pay what they owe. No, instead it will be your pensions and fees on your mortgage or pension pot, which will go up as a result. As for the perpetrators, they can retire on the millions they have already made or simply get a new job at an investment bank, once the dust settles.

Of course, the level of apathy and cynicism, both inside and outside the financial markets is so great in the wake of the financial crisis, that even the events of last week are likely not to be investigated properly. Even if there is an attempt, I’d expect a drawn out and fudged inquiry, as was the response to the Flash Crash in 2010, when someone out there clearly broke the market! No doubt, if there is even a report about this, some other dark horror will have emerged from the murky underworld, that is our financial market and our attention will be attracted to that. Who is going to care about a few milliseconds then?

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