…while the firm tries to figure out if the trio engaged in any currency rigging. Read more »
When I was growing up the phrase “market manipulation” really meant something. To be a “market manipulator” in the grand style you needed to corner a market, or pump and dump, or organize a bear raid, or do some other cigar-chompy mustache-twirly 1920s-y thing, I don’t know, it was never really my thing. But there was always a sub-manipulation category of just, like, trader skulduggery. Trading is about eking out tiny advantages over your counterparties by any means that you plausibly think might be legal, and the occasional pounding of the close or conducting of imaginary negotiations was all part of the game. “He’s a scumbag, but he’s our scumbag” was a genuine compliment.
The Libor manipulation scandal has really messed with that, huh? For one thing, Libor manipulation was a pretty uninspired brand of manipulation; all you had to do to manipulate Libor higher was to say “hi our Libor is higher.” Not a lot of imagination there. For another thing, it’s so obviously bad that anyone can understand it and get mad about it. “Wait, you just lied about an imaginary number and made billions of dollars at the expense of now-bankrupt municipalities? You really suck, you know that?” said everybody, basically. Then they all sued.
Which is all bad enough but the real problem is that now every bit of garden-variety scumbaggery immediately gets branded manipulation. And then investigated and, like, reformed and stuff. Today, for instance, there is this Bloomberg article about how FX traders manipulated the WM/Reuters close in certain currencies to basically clip a little bit of money off of clients who had put in orders to execute at that fixing: Read more »
You may recall that the New York attorney general is suing Bank of New York Mellon for maybe ripping off its FX customers a little bit by doing things like telling them that they would get the “best price” of the day on transactions and then actually giving them the “worst price,” which you could totally see how they might confuse those two.*
I love this suit because, to my untrained ear, it all sounds pretty maximally shady but also weirdly normal, and kind of like BoNY isn’t doing anything illegal here. BoNY … kind of agrees with that, since they filed a motion to dismiss the case today:
“This lawsuit is wrong, both on the law and on the facts,” Kevin Heine, a BNY Mellon spokesman, said in a statement. “It is based on a fundamental misunderstanding of the role of custodian banks and the operation of the global foreign currency market.”
BNY Mellon argued in its filing that customers “had all the material information they needed to assess the trades.” The bank each day published rates and executed standing-instruction transactions at rates “no less favorable” to the client than the published rates.
The bank then provided clients with confirmations or account statements accurately reflecting the actual price BNY Mellon applied to each transaction, it said. The bank wasn’t legally obligated to disclose its pricing methodology or its profit margins.
So that’s a little silly – “we publish rates, and then we execute at no worse than the published rate” is just a little bit short of “we execute at the best rate.” (It’s closer to “we make up a rate, and then we execute at it.”) Read more »
The last few weeks have provided some good examples of the trend toward unbundling products and making hidden fees explicit – with mostly pretty angry results from customers and shareholders. Meanwhile, in another part of town, Bank of New York Mellon has been operating what seems like a pretty shady hidden fee setup, and that’s pissing people off too.
No, not really, the new moneymaker is buying calls on the Hong Kong dollar, betting on Hong Kong abandoning its peg to USD. Regular recipients of Ackman’s unsolicited advice (e.g. anyone he’s set up with a personal trainer or wife), and those who read the comments here, may have already known that.