Back in May we first introduced our readers to the FX manipulation practice known as “last look.” Wait, what’s that? This is what we said:
The last look practice is a legacy of over-the-phone currency trading, when traders would take a final check of the market before executing an order. It has survived even as foreign-exchange trading moved onto electronic platforms, leaving banks with the option to back out of an order after it was accepted by a client.
– Swiss Shocker Triggers Gigantic Losses For Banks, Hedge Funds And Currency Traders (Economic Collapse, Jan 19, 2015):
The absolutely stunning decision by the Swiss National Bank to decouple from the euro has triggered billions of dollars worth of losses all over the globe. Citigroup and Deutsche Bank both say that their losses were somewhere in the neighborhood of 150 million dollars, a major hedge fund that had 830 million dollars in assets at the end of December has been forced to shut down, and several major global currency trading firms have announced that they are now insolvent. And these are just the losses that we know about so far. It will be many months before the full scope of the financial devastation caused by the Swiss National Bank is fully revealed. But of course the same thing could be said about the crash in the price of oil that we have witnessed in recent weeks. These two “black swan events” have set financial dominoes in motion all over the globe. At this point we can only guess how bad the financial devastation will ultimately be.
But everyone agrees that it will be bad. For example, one financial expert at Boston University says that he believes the losses caused by the Swiss National Bank decision will be in the billions of dollars…
“The losses will be in the billions — they are still being tallied,” said Mark T. Williams, an executive-in-residence at Boston University specializing in risk management. “They will range from large banks, brokers, hedge funds, mutual funds to currency speculators. There will be ripple effects throughout the financial system.”
– Knight 2.0: Jefferies Rescues FXCM With $300 Million Bailout, CNBC Reports (ZeroHedge, Jan 16, 2015):
In an apparent replay for 2012’s Knight Trading algo-implosion $400 million cash-infusion bailout, Jefferies (owned by NY-based I-bank Leucadia) is riding its white horse to the rescue of FXCM and its $200-million-plus client losses:
- *LUK IN $300M DEAL TO LET FXCM CONTINUE NORMAL OPS: CNBC
- *LEUCADIA GIVE FXCM $300M IN FINANCING CNBC
Leucadia will get $250m in senior notes as part of the deal, CNBC says. So – in summary – a central bank blew up an FX broker and a mid-market junk-bond underwriter bailed them out… must be good for a green close for the week in stocks!
– Deutsche, Interactive Brokers, Barclays Lost Hundreds Of Millions Due To Swiss Franc Volatility (ZeroHedge, Jan 16, 2015):
Yesterday, in the aftermath of the Swiss shocker, we tweeted what was quite obvious to anyone who realized that speculators were most short the CHF since the summer of 2013:
The SNB just blew up countless macro hedge funds
— zerohedge (@zerohedge) January 15, 2015
We have yet to find out just which hedge funds were blown up yesterday, but we already do know that numerous retail FX brokers did get blown up and as reported earlier, the largest retail broker FXCM is trading down 90% in the pre-market.And now, thanks to Dow Jones, we start to learn just how much pain the bank themselves suffered:
– Largest Retail FX Broker Stock Crashes 90% As Swiss Contagion Spreads (ZeroHedge, Jan 16, 2015):
UPDATE: Knight Trading 2.0? Jefferies executive are reportedly on-site at FXCM discussing a $200 million bailout
As we first reported last night, FXCM was among the first of many retail FX brokers (and the largest) to see its clients suffer massive losses from yesterday’s Swiss Franc surge following the SNB decision to unleash market forces. There are now at least 4 retail FX brokers (FXCM, Excel Markets, OANDA, and Alpari) who have announced “issues” but FXCM, being among the largest and publicly traded is the most transparent example of wjust what can go wrong when average joes are allowed 100:1 leverage. FXCM is now stuck chasing clients for money they do not (and will never) have.. and its stock is down 90%, trading a $2 this morning (down from $17 on Wednesday). As Credit Suisse notes, time is running out as regulators “tend to be impatient once capital requirements are breached.”
– Numerous FX Brokers Shutter After Suffering “Significant Losses” Following SNB Stunner (ZeroHedge, Jan 16, 2015)
To all those wondering if everything is rigged, we have a very simple answer: Yes.
– The Rigging Triangle Exposed: The JPMorgan-British Petroleum-Bank Of England Cartel Full Frontal (ZeroHedge, Dec 30, 2014):
The name Dick Usher is familiar to regular readers: he was the head of spot foreign exchange for JPMorgan, and the bank’s alleged chief FX market manipulator, who was promptly fired after it was revealed that JPM was the bank coordinating the biggest FX rigging scheme in history, as initially revealed in “Another JPMorganite Busted For “Bandits’ Club” Market Manipulation.” Subsequent revelations – which would have been impossible without the tremendous reporting of Bloomberg’s Liam Vaughan – showed that JPM was not alone: as recent legal actions confirmed, virtually every single bank was also a keen FX rigging participant. However, the undisputed ringleader was always America’s largest bank, which would make sense: having a virtually unlimited balance sheet, JPM could outlast practically any margin call, and make money while its far smaller peers were closed out of trades… and existence.
– “Ruble Trading To Resume” (ZeroHedge, Dec 17, 2014):
As already noted, yesterday one after another FX broker scrambled to disconnected the Russian currency from the system due to “western banks stopping quoting pricing” and as a result of epic volatility (and as everyone knows, brokers prefer to only trade those pairs where they know with near certainty they can pick 1 pip or so from every trade which is why they prefer stability and orderly markets). However, in the aftermath of today’s announcement that the Russia finance ministry will join the central bank in selling reserves, the RUB has found a bid. And sure enough, here come the FX brokers barging back, advising that Ruble trading is set to resume this afternoon.
– Big Banks Busted Massively Manipulating Foreign Exchange, Precious Metals … And Every Other Market (Washington’s Blog, Nov 12, 2014):
Currency Markets Are Rigged
Reuters notes today:
– Caught Rigging FX and Gold? Your Punishment Will Be A Bonus Capped At Just 200% Of Your Base Salary (ZeroHedge, Nov 11, 2014):
There are many more details and we will break them out shortly, but cutting to the chase, here is the punishment:
FINMA has also instructed UBS to limit bonuses for traders of foreign exchange and precious metals to 200 percent of their base salary for two years.
Which means that clearly nobody is going to jail, however the punishment is far more harsh: riggers will have a bonus of ONLY 200% their base salary for two years to look forward to!
The horror, the horror.
Which naturally means that base salaries across the rigging banks are about to soar to offset the tempoyrary bonus cap to the “keep the talent” happy. After all someone has to keep on rigging markets and generate bank revenue.