This should be the
time to tiptoe (very gently) back into the murky twilight that exists between
the legal/regulatory profession and markets, but as this column rarely believes
in doing anything gently, we’ll just pile right in. Are ...
So it seems that another group of “victims” are suing members of the foreign exchange industry over alleged malpractice, this time the mis-selling of FX options.According to a report “banks and brokers” are facing action over derivatives sold around the Brexit event, but is this over-egging the pudding? Would banks really have not learned the lessons of the past decade and have their legal documentation sorted out?
The FX industry could really do without another kicking, but as long as lines between segments remained blurred it will also be vulnerable to one.
I suppose it was inevitable really…the feeding frenzy that has attracted so many sharks – by which of course I mean lawyers – has apparently led to internecine warfare. According to a report, a third law firm has convinced BlackRock, Pimco and BlueCrest Capital Management to join another class action lawsuit against the banks over benchmark manipulation. The problem is the two law firms currently organising a class action in the US don’t like it – apparently they don't like sharing their lunch.
Whilst the publicity associated with the issue is unwelcome and untimely, last week’s revelation that a group of banks face a lawsuit over their use of (although it is probably more accurate to say ‘lack of disclosure of’) last look should have focused a few minds on the feedback process being run by the recently-formed Global FX Committee.
We need to be clear about this – if this lawsuit is settled or lost by the banks then more will inevitably follow.
The unsuccessful end of the Axiom Investment Advisors’ class action against Deutsche Bank over last look is an opportunity to look at one or two issues – specifically around the raft of legal actions taking place, a workstream of the Global FX Committee, and disclosures.
My first thought on reading through the judge’s Decision was “I wonder what those banks that settled are thinking now?” My second was the observation that the judge used the word "ambiguous" a heck of a lot.
There are so many lawsuits aimed at financial markets participants that it is hard to keep up these days, and while most are aimed at historic actions, there is definitely a culture building in which the first instinct of someone who feels they have been wronged is to head to the courts. This has to stop somewhere, for if it doesn't there will be repercussions for the market structure. If you have a problem with a market, tell the operator and then tell the regulators - only after then do you hit the lawyers.
The problems around OTC market benchmarks are well-established, but it's not just limited to these markets - there are suspicions and claims about collusion and attempted manipulation in listed markets as well. The latest lawsuit against FX banks has a very interesting paragraph in it which highlights the Plaintiffs' belief that the Fix is open to manipulation, which begs the question, "Why use it?"
So is it time for a rational and genuine discussion about the use of these benchmarks? I think it is.
It's the end of year It’s the end of year special podcast and Colin Lambert and Galen Stops are in jovial mood as they bring the curtain down on another busy year in the FICC industry. Listen in as they each identify a key theme from the past year and look to re-assess them with the benefit of hindsight, before moving into less certain territory by providing a price prediction for everyones favourite out-of-control child, Bitcoin.
They also – this being the season of making a wish, share their one hope for 2019, although one of them (Lambert of course) appears to have forgotten it’s the season of goodwill!
In a sensational end to the year’s podcasts, Lambert also reveals that yes, he did indeed quote from the film Love Actually in a podcast earlier this year, but he tries (and fails) to make amends by setting listeners another teaser by paraphrasing from a much more acceptable movie…in his mind at least!
Scepticism abounds in this week’s In the FICC of It podcast as Colin Lambert and Galen Stops take a look at the latest bank to unveil a digital markets strategy – including all your favourite buzzwords. While Stops believes this is the latest move in what will be a growing trend, our podcasters also wonder whether it’s not really just a rebranding exercise?
They then move into more traditional areas and discuss JP Morgan’s survey on FX market conditions, and while they agree with a lot of the findings, there are one or two areas that raise an eyebrow, not least around internalisation and AI.
AI-generated trading and liquidity are also the forefront as they move on to share their thoughts around the flash crash in Jardine Matheson stock last week in Singapore, including asking the question, what does it mean for market maker programmes and certain order types?
The discussion then moves on to look at the latest FX turnover surveys from the world’s FX committees, with particular attention on three interesting/puzzling (delete as appropriate) elements of the UK report surrounding RMB, NDFs and voice brokers.
The podcast ends on with Lambert praising “the optimism of youth” after Stops highlights what he thinks could be a very important line at the end of the latest document detailing an FX-related fine in the US – in other words, the cynic in him won the day!
What can only be described as a frisson of excitement ran through the FX market in London last week when word spread of former Barclays head of automated trading services David Fotheringhame launching a new website that – and this is putting it delicately – analyses the bank’s response to a fine imposed on its FX business in 2015 for what was found to be a too liberal use of last look.
Fotheringhame won an unfair dismissal claim against the bank last year, however Barclays defied the employment tribunal’s edict to reemploy him, resulting in a second hearing this year at which he was awarded nearly £1 million.