This week New York's Department of Financial Services leveled a $350 million fine against France's BNP Paribas for what at this point is an old story: “illegal, unsafe and unsound conduct” in foreign exchange trading. And while the offenses do indeed sound pretty indefensible – inflating spreads, manipulating benchmarks, outright lying about markups, etc – it's apparent that what really rankled the regulators who parsed the 120,000 pages of evidence was that BNP's forex traders clearly had a gas.
We've already seen plenty of profanity-laced, cheekily named chatrooms (“The Mafia,” e.g.) where forex traders colluded to maximize their profits at the expense of clients. These former BNP traders are no exception. One trader, for instance, who organized a group called “ZAR Domination” whose sole purpose was to jerk around the price of the South African rand, or ZAR. As he wrote to one prospective member:
“[W]e got a little cartel really brewing ... really try and move zar . . . wont take much to push it . .. we will know where all the orders are . .. we got like 200 bucks offirepower ... occasional blow up but we win . . . make one chat room ... call it Zar domination ... i think it is a million dollar plan ...we have to be proactive on it though. Couple times a week for it to pay off.”
But BNP's traders weren't just goofing off. They put real effort into their hijinks. There were “secretive hand signals.” There were lengthy codebooks. Even the DFS grudgingly called the schemes “ingenious.”
Take, for example, the group of yen traders at BNP and other global banks who met in the chatroom titled “We Reign.” The purpose of the group was to share client identities (a no-no!) in order to keep spreads high for everyone. To be safe, they applied one- or two-letter codes to various clients, among whom were “central banks or other important market participants.” All of this required some real ingenuity:
"We Reign" circulated the codebook using participants' personal e-mail addresses. They periodically updated the codebook with new market participants and retired unused codes. To maximize its effectiveness, when the group circulated a revision of the codebook in March 2008, it employed a one-week training period to learn the new codes and agreed to use old codes to permit a ramp-up to the updated version.
Also to evade surveillance, the group buried code words or symbols within other words, effectively creating rules of grammar. This fostered the impression that coded communications were actually stray keystrokes, as one group member explained: "It might be confusing at first, but ... it will look more like a typo, also it will be much better than using stuff. .. which actually look like codes . ... [this way] we can protect ourselves."
They trained for a week! They designed a novel grammatical structure! That's a bit more sophisticated than idle chatter and collusive bids. Of course, even voluntary training doesn't prevent a baseline level of idiocy from occurring.
In October 2008, Trader 10 told the group about certain trading activity that occurred "right before bought vsmall usdvchf" The term "vsmall" referred to a specific trade volume, while the letter "v" buried in the middle of the currency pair identified the particular BNPP client that traded. Trader 10 reminded the group, ''please keep your lips sealed thx. "
If you're going to go to all that trouble to avoid detection, you probably don't want to say things like “keep your lips sealed.”
Elsewhere, BNP traders demonstrated a relative lack of discretion. One unseemly practice involved obscuring trade markups, the extra cash BNP traders kept for the bank in addition to the spread between bid and ask prices. Markups are kosher, of course, but you're supposed to tell customers what they are when they ask. But since that's no fun, BNP sales staff and traders set up a covert line of communication, so that when customers inquired with salespeople about their markups, the sales staff could jump online and get a phony quote from the trader.
Appropriately enough, they called this forum the “money printing chat room.” Those who dwelt there called each other “voleur,” which is French for thief. “We make boat loads $$$$ here,” one employee declared. Here's money printing in action:
In a March 2012 chat, for example, a New York BNPP trader ("Trader 20") listed two prices in the "money printing chat room": one for a euro/yen trade and another for a U.S. dollar/yen trade. A salesperson ("Salesperson 2") asked Trader 20 whether "that's including 2 pips on both," to which Trader 20 confirmed the two-pip markup. After Salesperson 2 reported a successful sale at those enhanced prices, Trader 20 responded "merci ... [tu] es un beau con artist."
Not much subtlety there, though bonus points for fitting three languages into a chat. Here's another gem from the minting press:
In a June 2012 discussion about a potential order from a Japanese customer, a BNPP salesperson ("Salesperson 3") told Trader 20 that her boss "has to adjust the voleur-meter." Trader 20 responded, "ohh that's rite .. . almost forgot. . . Japanese hate thieves."
Oh, those wacky Japanese.
What's odd about these schemes is how strangely meta they are. The traders certainly had a chuckle when they dubbed themselves thieves and gave their chatrooms names like “the Cartel.” But the cute lingo happens to be perfectly accurate. You get the sense that there was subconscious purpose to archly adopting the language of criminal conspiracies: to obscure the guilt of actually carrying out true criminal conspiracies. There's been plenty of talk about “toxic cultures” helping to cultivate financial wrongdoing. But there's far less attention on the real culprit: irony.