Mark Johnson, the head of global FX cash trading at HSBC and
Stuart Scott, former head of FX cash trading for EMEA at HSBC, have been officially
charged by the US Justice Department with conspiring to defraud HSBC clients by
Documents lodged by the team representing HSBC’s former global head of FX trading, Mark Johnson, in his defence against market manipulation claims, indicate that should a defence case be needed it will focus on proving that the bank – and Johnson’s conduct – was in line with standard industry practice. Johnson and former head of EMEA FX trading Stuart Scott have been charged by the US Department of Justice with allegedly front running a large fix order from Cairn Energy.
Two of my pet hates have long been the blurring of lines between retail and institutional in FX markets, and the Fix. The start of the Mark Johnson trial, and many peoples’ reaction to it, have only served to increase my rage as it has highlighted both the increasingly loud (to my mind too loud) voice of the retail trader and the stupidity of using the Fix. Put simply, if you want a flash crash every afternoon in London listen to these people.
With apologies to those loyal readers who normally part with their hard-earned cash to read this column, today I am going to make it “free to air” – mainly because I feel there is a message that simply has to get out there regarding FX execution and liquidity.
If nothing else, the ongoing Mark Johnson trial in New York is highlighting how there are some seriously poor assumptions made in the wider world about how the FX market really operates.
Just a few days after his former manager Mark Johnson was found guilty of wire fraud by a New York jury, HSBC’s former head of European FX trading, Stuart Scott, has failed in his efforts to block his extradition to the US to face similar charges.
Scott was charged by the US Justice Department, along with Johnson, of conspiring to defraud Cairn Energy with regard to a large sterling buy order for the firm in December 2011. Scott continues to deny he did anything wrong.
Pre-hedging is a hot topic at the moment, not least because of the Mark Johnson trial and the possible ramifications of the jury’s guilty verdict, but what happens when pre-hedging goes wrong? This was one of several interesting questions raised during our Insights call on Thursday last week and is something I’d like to go into in more depth here. What do we do with price improvement as a result of pre-hedging, and more pertinently, what do we do with a loss?
Credit Suisse has agreed to pay a $135 million fine as part of a consent order with the New York State Department of Financial Services (DFS) for violations of New York banking law, including improper efforts with other global banks, front-running client orders, and additional unlawful conduct that disadvantaged customers.
The violations stem from an investigation by DFS that determined that from at least 2008 to 2015, the bank “consistently engaged in unlawful, unsafe and unsound conduct by failing to implement effective controls over its foreign exchange business”.
In spite of spending a night at the back end of a 747 I am in a strangely optimistic mood this morning - and even more surprisingly I am so after reading through the New York Department of Financial Services' report on its investigation into Credit Suisse’s FX business. I have also read through the GFXC release that highlights the progress being made on last look, however and that, allied with a few voices of dissension recorded in the pages of the DFS report have brightened my mood.
Robert Bogucki, the former head of Barclays’ New York FX operation was charged yesterday in an indictment for his alleged role in a scheme to front run client orders.
Bogucki has been charged in an indictment filed in the Northern District of California on January 16, with one count of conspiracy to commit wire fraud and six counts of wire fraud. He was due to make his initial appearance on January 17, at 2:00pm in Brooklyn, New York, before US Magistrate Judge Cheryl Pollak of the Eastern District of New York.
According to the indictment, in September and October 2011, Bogucki is alleged to have misused information provided to him by Hewlett Packard (HP), which had hired Barclays to execute an FX transaction related to the planned acquisition of a UK-based company.
HSBC has been fined $101.5 million for front running client orders, the US Department of Justice (DOJ) announced today.
The bank has entered into a deferred prosecution agreement (DPA) and agreed to pay a $63.1 million criminal penalty and $38.4 million in disgorgement and restitution to resolve charges that it engaged in a scheme to defraud two bank clients through a multi-million dollar scheme commonly referred to as “front running”.
The DPA, which was filed in connection with a two-count criminal information charging wire fraud in the United States District Court for the Eastern District of New York, is pending review by the court.
There's a lot of noise about the latest front running accusations in FX world, with people talking excitedly about a fundamental change in how the market operates, but it strikes me that the changes these people talk about have already happened. Does any one really carry risk any more? Aren't targets expressed not in P&L terms but in fees generated and market share (which is itself a quasi fee)? Nothing is going to change - including the lawyers getting rich at the industry's expense!
Mark Johnson, the former head of global FX cash trading at HSBC in London, has been sentenced to two years in prison following his conviction for eight counts of wire fraud and one conspiracy charge by a US court in October last year. Johnson was also fined $300,000.
Profit & Loss has reported extensively on the case, and just pulling out a few of the headlines provides a fairly decent timeline for how the case has developed since Johnson was arrested in New York almost two years ago.
A few of you have been in touch to say you couldn't make the Insights call on Tuesday but were still keen to hear my thoughts on Mark Johnson being handed down a two year jail sentence. As flattering as it is to have people want my opinion on it, I really only want to go into brief details because firstly there are things better left said on an informal, off-the-record call, and secondly, you should have been on the call!
A second Amicus Brief filed in the Mark Johnson appeal stresses the risks associated with providing FX services to clients around the Fix and argues that pre-hedging is intrinsic to handling orders at the mechanism.
The Amicus from Professor Torben Andersen, the Nathan S. and Mary P. Sharp Professor of Finance at the Kellogg School of Management at Northwestern University says that without the ability to pre-hedge, dealers would have no economic incentive to trade as principals with customers at the Fix.
“When dealers trade as principals at the Fix, they typically pre-hedge their trades by executing a number of smaller transactions before the Fix time,” the Amicus states.