For those have belief in the legal system
of democratic countries like the UK there must have been an expectation that as
the aforementioned system heard and adjudicated on the various cases brought by
authorities and bankers, we would have some closure, or at least clarity in the
chat room and Libor cases. The reality seems to be anything but.
This week sees another two employment
tribunal hearings involving FX traders seeking unfair dismissal. They follow
two judgements that have found in favour of the plaintiffs (the traders) but
with reservations. A third judgement is also believed to have been in favour of
a trader, but the circumstances in the case involving Paul Carlier are
different as it surrounds his claims he was dismissed because he was a whistle
blower – he is not accused of wrongdoing.
And of course, we have last
night’s decision by a UK jury to clear five of the six brokers accused of
helping Tom Hayes manipulate Libor.
I suspect that the statement issued on
Hayes’ behalf may signal more legal machinations, because at face value it does
seem conspiring to manipulate markets requires more than one person. Either
way, the legal profession will continue to get rich, but that is not what I
want to discuss today.
Although we don’t seem to be getting
anywhere with understanding who or what was at fault in the FX chat room saga,
we should not under-estimate the importance of these decisions to the
Notwithstanding that, a pattern seems to be
emerging wherein the judges believe the banks have followed incorrect procedure,
but the individuals know they were doing wrong – and as such are not
financially compensated. More importantly, I have asked a few people if they
believe the traders found to have been unfairly dismissed (but who received
little or no compensation) were employable in the FX market and the answer
seems to be a universal ‘no’.
Put simply, employers are trying to be
cleaner than clean, and even if the legal system has found in the traders’
favour, the very fact they went into chat rooms is counted against them.
There are some who will find this very
hypocritical of the institutions concerned – for it seems to have been accepted
by the legal system that individuals were actively encouraged, or at the very
least their presence was condoned, in chat rooms.
It would perhaps help if we had a judgement
on whether the culture in the institutions was wrong, rather than whether these
institutions can follow a simple appeals procedure. I say this because most
traders will know (or at least they should) that sharing confidential
information is wrong.
The world hasn’t changed that much since I
was trading and I would no more think of sharing information with a third party
institution than I would stick a bid or offer in a public market for a huge
amount to signal my order (which incidentally once happened by mistake – it
didn’t take long for everyone to find out who the offer on EBS for DEM 999
million in mark-lira was!).
So we know that sharing confidential
information is wrong, so how does it happen? The problem has to start with
managers. The evidence presented thus far suggests chat room participation was
actively encouraged by some managers – and while speaking to one involved
loosely in this mess it was claimed that they just wanted their staff to watch
what was happening.
That is, with all due respect, a ridiculous
approach. More pertinently it also raises a moral question. For even if a
trader is just observing the chat in these rooms, they will still be aware that
wrongdoing is taking place, but given how they have been told by their manager
to get involved are they then going to whistle blow? It’s doubtful, thus we are
presented with a situation in which participating in chat rooms seems to be
culturally, but not morally, acceptable.
I have spoken to managers involved in this
mess who told me from the start that they actively discouraged their traders
from getting involved – some even warned them it would end badly. In some cases
this advice was listened to, but sadly in others it wasn’t. And there was no
way for the managers concerned to effectively monitor what was being said if
their advice was ignored.
This in turn raises the question should
these managers have escalated the issue further? I suspect that some did, and
as such it would be helpful if, during one of the many tribunals impending, we
could find out if they did. Sadly I don’t think we will.
Reading reports of the first day of the
Carly McWilliams hearing against Citi I was struck by the reported comment of
one of the bank’s 10 (yes 10!) lawyers present, who noted that Perry Stimpson,
whom the judge found in favour of last year, was found to have acted “with
foolishness” but that McWilliams’ case was more serious.
Does this mean the banks are now trying to
link the number of times a trader was in a chat room with their dismissal? If
so it still ignores the cultural question about what were they doing there in
the first place and who condoned or encouraged it?
The Libor judgement last night also throws
up an interesting issue that is also relevant to the FX world. A big part of
the argument from the brokers who were acquitted was that they were merely
keeping their customer happy to get business.
I couldn’t count the number of times I hear
(everywhere, not just the FX world) that the customer is always right. Well
supposed, as does happen, a customer is asking for confidential information?
What happens then? Morally it is wrong to provide that information, so a
culture in which “the customer is always right” raises more issues.
So we are not even half way through the
round of unfair dismissal cases (although I hear one bank has settled with one
trader ahead of a hearing) and we are, sadly, learning little. Financially we
seem to have nailed where the wrongdoing occurred, after all why did the banks
pay all those fines? This would suggest that financially we have discovered the
problem that existed within the culture of some banks. The problem is, legally
Colin_lambert@profit-loss.com Twitter @lamboPnL