First it was humans. Now it is vacuum tubes.
Having quickly learned that letting carbon-based traders engage in FX (or stock, or bond, or Libor, but not gold, never gold) rigging usually leads to said carbon-trader ultimately being fired with the bank suffering a violent slap on the wrist, banks are getting smart, and have – as we have been claiming for about 4 years – decided to let pre-programmed algos do all the market manipulation. Only this time it is not some tinfoil blog making this accusation, but New York regulators who according to Bloomberg, have found evidence that Barclays Deutsche Bank may have used algorithms on their trading platforms to manipulate foreign-exchange rates, a person with knowledge of the investigation said.
As Bloomberg reports, the practice suggests there may be a systemic problem involving automated tools that goes beyond individuals colluding to rig currency benchmarks and take advantage of less sophisticated clients.
Whatever tipped them off: was it looking at any given Yen cross for about a minute and seeing the now surreal stop hunts that take place on a constant basis as algos outrig each other in attempts to pick the pockets of any human fools who still think they have a chance in yet another rigged, manipulated market.
The algorithms’ use is being scrutinized by the New York Department of Financial Services, said the person. The investigators are looking into the practice at each bank and it isn’t clear if there’s a link between the two, according to the person, who asked not to be named because the matter isn’t public. The algorithms were embedded in Barclays’s BARX trading platform and Deutsche Bank’s Autobahn system, according to the person.The two services provide electronic marketplaces for the banks’ customers to trade currencies. Rather than directly matching one client’s buy order with another’s request to sell, the systems aggregate all requests from the banks’ clients to create prices that are displayed to customers. The banks profit from the spread or the difference in the price at which currency is sold and bought.
Not surprisingly, Autobahn, which is offered to Deutsche Bank’s companies and institutional investors, was ranked top in a market-share survey by Euromoney magazine earlier this year (Euromoney also awarded the bankrupt Bank of Cyprus the award for Best Bank in Cyprus for 2011). BARX allows customers to trade more than 80 currencies, according to the London-based bank’s website.
Ironically, both Deutsche Bank and Barclays were not among the six firms that agreed to pay $4.3 billion to U.S., U.K. and Swiss authorities last month in the first settlements in the global probe. London-based Barclays dropped out of negotiations on the eve of the announcements after DFS Superintendent Benjamin Lawsky balked, viewing the penalties as too lenient, people with knowledge of the talks said at the time.
Of course, the foreign banks thought that with a few good human traders fired, the algos could continue their rigging unobstructed. Yet someone appears to have tipped off Lawsky to the full extent of just how manipulated the FX market is.
Which means that New York regulators are now losing sleepless nights thinking of the best way to throw an algo in jail, because clearly none of the humans who programmed it are guilty of anything. Remember: when an algo is caught rigging markets, it is a “glitch.”
Oh, and we emphasize the phrase “foreign banks” above because while we applaud the NY regulator’s push to “fix” rigged markets, we can’t help but wonder why not a single US-based bank has fallen in the crosshairs? Could it be that there is just too much lobby spending on the line to keep lady justice interested in what the objective truth is?
But while this diversion is a welcome attempt to create the illusion that regulators are “on top of things”, nothing will change when the biggest manipulators happen to be the central banks themselves, either acting alone or in coordination with Citadel.
Finally, while absolutely nothing will change in the US, one person who has clearly had enough with rigged FX markets – be it by humans or vacuum tubes – is none other tha Vladimir Putin:
- RUSSIAN INVESTIGATORS PROPOSE MAKING FX SPECULATION CRIME: TASS
- RUSSIA MAY MAKE FX MKT MANIPULATION, INSIDER TRADING A CRIME
Because when the west is a rigged grouping of insolvent banana republics, it is up to the former banana republics to acknowledge that the biggest criminal syndicate in the “new normal” are the bailed out banks themselves.
