Tag: Pre-Hedging

Pre-Hedging

Is the Johnson Appeal Raising the Stakes for the FX Market?

Written testimony has been lodged relating to former HSBC FX trading head Mark Johnson’s appeal against his conviction for wire fraud in the US and it contains a few surprises – some of which may indicate stronger implications for the FX industry than the original trial, as Colin Lambert discovers.The original trial of HSBC’s former global head of FX trading Mark Johnson was widely seen in the FX industry as being, aside from the outcome on his personal circumstances, a single issue case – what would the US legal system say about pre-hedging? The initial outcome – which is now being appealed – was a conviction and a jail sentence under the very broad umbrella of “wire fraud”, a decision that was seen as potentially having an impact on the FX Global Code, which explicitly (under certain circumstances), endorses the practice.

Is the Johnson Appeal Raising the Stakes for the FX Market?

Written testimony has been lodged relating to former HSBC FX trading head Mark Johnson’s appeal against his conviction for wire fraud in the US and it contains a few surprises – some of which may indicate stronger implications for the FX industry than the original trial, as Colin Lambert discovers.The original trial of HSBC’s former global head of FX trading Mark Johnson was widely seen in the FX industry as being, aside from the outcome on his personal circumstances, a single issue case – what would the US legal system say about pre-hedging? The initial outcome – which is now being appealed – was a conviction and a jail sentence under the very broad umbrella of “wire fraud”, a decision that was seen as potentially having an impact on the FX Global Code, which explicitly (under certain circumstances), endorses the practice.

In the FICC of It

There’s something for everyone in this week’s In the FICC of It podcast as Colin Lambert and Galen Stops traverse the US legal system, trading, crypto and China.
Listen in as Lambert explains why he is mystified at the prosecution’s flip-flop in the Mark Johnson case and angry at the FX industry’s previous lack of effort to explain how markets work to the US legal authorities; and Stops takes a look at a new report n his favourite industry – CTAs. Having had the data explained to him, Lambert also thinks he knows why some CTA sectors are doing well and some aren’t, so that’s another of his “theories” then…
Our podcasters then move onto debate whether crypto markets will evolve to an OTC model and whether this would be a good thing for attracting institutional money to what is still a relatively nascent market.
Stops closes out by reporting from an analysts’ briefing this week that highlighted a change in approach on the part of China to its programme of liberalisation of the yuan.

And Another Thing…

I have previously argued that the FX industry needs to pay attention to the outcome of the Mark Johnson trial. Reading through the appeal documents, however, indicates the stakes have been raised. The prosecution’s original case was, in my opinion, flawed when looking at how the FX market works, but the new charges take this to a new level and they throw into a harsher light the reluctance of certain trade associations to engage and educate the US authorities earlier in this case – we can only hope it is not too late.

And Finally…

With a reminder to readers that there is still time to vote for a real Irrational – P&L’s Socks of the Year (click here), let’s move onto to the next accolade, the “It’s been a tough year for…” award.
The winner might come as a surprise because I, along with many, feel the FX Global Code has made decent progress this past year and has also done a lot of good for the market by providing a clear framework within which people can work.

And Another Thing…

There was an interesting line in a report in yesterday’s Handelsblatt discussing the impending lawsuit against the banks in Europe and the US. We, along with other news organisations, reported the impending European lawsuit at the time the US papers were filed (although it did apparently come as a surprise to some outlets who reported the European case “exclusively” one week later!) but the Handelsblatt report has a quote from a source at one of the plaintiffs that I found quite insightful and potentially signals a nightmare for the banks facing the case.

And Finally…

The FX industry is advancing how it deals with certain issues, but the pipeline of areas in need of clarification and further debate shows little sign of slowing down. Two areas that concern me at the moment are exactly how platform operators are enforcing their rulebooks – are they being fair and balanced to both LPs and LCs? – and exactly what constitutes “full amount” trading? An open and data-backed discussion will solve the latter, but I wonder if we need an industry ombudsman for the former?

And Another Thing…

On Monday I called for a radical re-think around the FX industry’s use of benchmarks – and this elicited (and continues to do so) considerable feedback. Re-reading the latest class action over activities around fixes, however, made me realise this case could also end up revolving around pre-hedging – and if it does, then not only do certain industry bodies face a real challenge, but more broadly we have to discuss much more than restructuring one small piece of the market.

And Another Thing…

More than a few people have told me in recent weeks that they see the trial (which is now at the appeal stage) of Mark Johnson, and that of the Cartel threesome – which started this week in New York – as being inextricably linked. You all know what’s coming…I don’t agree. In fact I would argue there are some fundamental differences that mean this week’s trial – complex as it is – cannot be seen through the same lens.

A Question of Faith: Asset Managers and the Fix

Benchmark fixes have been immersed in controversy for the past five years, but anecdotal evidence sees no shift in asset manager attitudes to them. Colin Lambert asks, will these firms ever desert the Fix?

If there has been one lightning rod for controversy in what has been a pretty turbulent period for the foreign exchange industry it has been benchmark fixes. Banks have been fined, traders and managers have been dismissed, and some are facing legal sanctions, including jail, thanks to various activities all of which were centred on the WM and European Central Bank fixes.