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And Another Thing…

Happy Thanksgiving Day to our American friends; the rest of you will be unsurprised to hear I am a little grumpy so today’s column has plenty of sarcasm and irony, and very few glad tidings.

Social media has a lot to answer for – including, I am about to argue, some of the problems that continue to engulf the foreign exchange industry.

Why do people feel the desperate urge to share everything? I get it if one wants to share personal events with friends and family, especially if they are distant, but beyond that? No, beats me every time.

I say this because I continue to be mystified as to why traders would want to share information with their competitors. I have said before that those traders in some chat rooms may have started their discussions years ago over the Fix looking for a match, but it appears to have badly degenerated from there. It’s all very well talking about “building” and the like, but only one bank was “building” according to the FCA and CFTC documents, while three or four others seemed to know it.

I am impressed at the trust the dealers appeared to have in each other that the bank left with the “built” position wasn’t royally stuffed (it’s a technical market expression – look it up) by his “friends” in the chat room. Perhaps it’s because the other traders didn’t want to be “unfriended”; I believe some people are traumatised by the experience, but you would hope someone used to having 100 million or more around his ears would be tough enough.

Either way, the next issue we face in FX is potentially one of leaking information on large orders to customers. Following a Reuters report that the US DoJ was travelling to the UK to interview traders, the Wall Street Journal reported that it was investigating an HSBC admission that one of its traders may have shared information with a hedge fund client.

The trader is alleged to have told Moore Capital – every bank trader’s best friend – about a large sell order related to a Prudential takeover of a an AIG business. Obviously HSBC had this order so this looks like the inappropriate sharing of information, but again I have to ask, why share it? What does that do to help things?

I can remember getting a large sell order back in the day related to a takeover and I moved heaven and earth to make sure no one outside of my organisation knew anything about it – and even then it didn’t work too well as an offshore branch tried to – how can I put this politely? – take me to the cleaners!

The point is the trader was going to be judged on the quality of the execution, so why spread the news you are going to have to sell ahead of time? All you are doing is making life harder for yourself.

Two counters to this are, I suppose, that the trader may have been given a sell order “at best” but I am not sure it is very prudential (see what I did there?) to hand what could have been a massive (up to £20 billion) order to a trader and say something like, “go on son, have a go – knock yourself out”.

The other counter could be that the trader was looking for potential buyers.

Right…yes…I see.

The first place I would go would be a major hedge fund because they’re a fairly benevolent breed and would be happy to say, “yes old chap, here, I’ll buy back my 50 million short to help you sell 20 yards”.

It’s ridiculous. Ask a corporate maybe, an asset manager (but please don’t ask them ahead of the Fix) perhaps, but a speculative trader who is paid according to the amount of money they make? They’re not charities, and they are probably more aware than the humble bank trader of the insider trading laws and as such will not touch the info with the proverbial bargepole.

So here is a message to the traders of the world. Facebook won’t help you with a large trade, nor will Twitter, WhatsApp, Chat, or (OK I made that last one up but you get the gist). What will help you is deft execution skills using good technology – the latter will be especially important in proving you did the very best you could for the customer.

Just to prove I am here to offer constructive advice and not just blindly criticise things, here are a couple of examples of posts I do not want to see on social media:

“OMG!!! About to sell 3yardsEUR!!!!Going to be awesome #FX #sellnowwhileyoucan”

“[Name of Trader] is going to buy 5 yards of Sterling, 32 people “like” this”

Now if you think these examples are silly, well yes they are. But they are only a little sillier than broadcasting an order to outside parties. Seriously, I know we live in a world where everyone believes we all need to know everything they are doing, but just as I am not interested in people’s domestic arrangements or dinner plans (or choices), then outsiders shouldn’t need to know a bank’s order book.

Bank traders should ask themselves a question. The hedge fund trader is widely seen as the pinnacle of the trading profession and to a man or woman, they know the value of keeping their business quiet (at least until it’s done). Do they go around blabbing about their large orders?

So, bank traders, please stop treating FX as an extension of the social media world, use some common sense and shut up!  and of course don’t forget to follow me on Twitter!!!

Profit & Loss

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