Tuesday, February 9, 2016

5 Most Galling Lines From Barclays Forex Chats

Law360, New York (May 20, 2015, 8:54 PM ET) -- “If you ain’t cheating, you ain’t trying.” This isn’t just an overused and cynical sports adage, it’s one of many jaw-dropping exchanges by a group of traders who called themselves the “cartel” and teamed up to manipulate global foreign exchange markets, according to Barclays PLC's settlements with regulators.

In addition to pleading guilty to criminal antitrust violations, Barclays paid $710 million to the U.S. Department of Justice, $342 million to the Federal Reserve, $400 million to the U.S. Commodity Futures Trading Commission and $485 million to New York’s Department of Financial Services. The U.K. Financial Conduct Authority also fined the British bank £284 million ($441.8 million) for violations of U.K. antitrust law.

In settlement documents and statements announcing those deals, regulators cited examples of the egregious language used by forex traders at Barclays and other banks in secret, multibank chat rooms. One invitation-only chat room, referred to as “The Cartel” included forex traders from Citigroup Inc., JPMorgan Chase & Co., UBS AGRoyal Bank of Scotland Group PLC and Barclays who specialized in trading the euro, according to the NYDFS. 

Here, Law360 looks at a few of the choicest conversation snippets from that chat room and others, as cited by the CFTC and NYDFS.

'yes, the less competition the better'

As part of their scheme to manipulate the prices in certain forex currency pairs and certain forex benchmark rates, traders would “build ammo” by amassing a large portion of currency and then unload the “ammo” just before or during a fix in order to move prices, according to the NYDFS.

Traders in the multibank chat often agreed to stay out of each other’s way around the time of a fix and avoid executing contrary orders while a price was being deployed. Traders also cooperated with price manipulation by trying to “clear the decks” of contrary orders so as not to dilute the “ammo,” the NYDFS said.

In a June 2011 chat with a trader from HSBC, one Barclays trader reported that another trader was building orders to execute at the fix, contrary to HSBC’s orders, but Barclays helped HSBC by executing trades ahead of the fix in order to decrease that other trader’s orders, according to NYDFS.

In a separate chat several months later, a Barclays trader told a trader from Citigroup, “If u bigger. He will step out of the way. . . We gonna help u,” NYDFS said.

Forex traders in the U.S. dollar/Brazilian real market colluded in a more straightforward way, according to the New York regulator.

In an October 2009 chat, an RBC trader reportedly wrote, “everybody is in agreement in not accepting a local player as a broker?”

A Barclays forex trader reportedly responded, “yes, the less competition the better.”

'u dont have clients . . . u dont make money .  . . so dont be stupid.'

According to the NYDFS, members of the Barclays forex sales team also routinely misled their clients by applying so-called hard markups to the prices traders gave them without their clients’ knowledge. These markups were a significant revenue source for the bank and sales managers pushed their employees to use them as much as possible, the NYDFS said.

Forex sales employees allegedly determined customer markups by calculating the best possible rate for Barclays that wouldn’t raise any red flags with the customer. These calculations were based on the bank’s relationship with the customer, their recent pricing history and the clients’ expectations, according to NYDFS.

One forex sale employee reportedly put it this way to an employee at another bank in December 2009: “hard mark up is key . . . but i was taught early . . . u dont have clients . . . u dont make money .  . . so dont be stupid.”

'if you aint cheating, you aint trying'

When one forex sales employee admitted to a colleague in June 2009 that he had “come clean” to a client about a hard markup, the colleague told him, “i wouldnt normally admit to clients if you pip them. i think saying you rounded is fine.”

The first employee agreed and then clarified that he didn’t really come clean, but rather that he told the client he had rounded the amount. 

In a November 2010 chat message, the future co-head of Barclays' UK forex hedge fund sales, who was then a vice president in the New York office, wrote: “markup is making sure you make the right decision on price . . . which is whats the worst price i can put on this where the customers decision to trade with me or give me future business doesn’t change . . . if you aint cheating, you aint trying.”

'we do dollarrr'

As they colluded to fix the markets, the traders in the chat rooms kept each other abreast of their activities, according to the CFTC.

In one chat cited by the futures market regulators, a trader from Barclays and a trader from “Bank Y” coordinated their trading in order to manipulate a WM/R 4 p.m. London fix.

At 3:43:50, the Barclays trader reportedly asked the Bank Y trader whether he needed to buy Euros in the market in the forthcoming fix. The Bank Y trader told him that he had a net buy order for the fix, which he said totaled 105 million. Less than a minute later, the Bank Y trader reportedly offered to transfer that net buy order to the Barclays trader. The Barclays trader chatted “maybe” and said he had a net buy order for 150 million, according to the CFTC. 

The two traders then had the following exchange:

“Barclays trader: i'd prefer we join forces
Bank Y trader: perfick/ lets do this .../lets double team them
Barclays trader: YESssssssssssss”

Once the fixing window closed, the traders congratulated themselves, the CFTC said:

“Barclays trader: sml rumour we haven't lost it
Bank Y trader: we/ do/ dollarrr”

'dont want other numpty' s in mkt to know'

Throughout the yearslong scheme to rig the foreign exchange markets, forex traders often had multiple chat rooms open simultaneously within their trading terminals, according to Barclays’ settlement order with the CFTC.

Being a member of certain chat rooms, like “The Cartel,” was considered very exclusive. When inviting new members, existing traders often discussed whether a new addition would be in the best interests of the group first.

In one chat, traders from three other banks reportedly discussed whether to invite a Barclays trader into a chat room:

“Bank Z trader: are we ok with keeping this as is ../ ie the info lvls & risk sharing?
Bank X trader: well ...
Bank Z trader: that is the qu[ estion]
Bank X trader: you know him best obv .../ if you think we need to adjust it/ then he shouldn't be[] in chat
Bank Y trader: yeah that is key/ simple question [Bank Z Trader]/ I trust you implicitly [Bank Z Trader]/ and your judgement/ you know him/ will he tell rest of desk stuff/ or god forbin his nyk ...
Bank X trader: yes/ that's really imp[ortant] q[uestion]/ dont want other numpty' s in mkt to know/ but not only that/ is he gonna protect us/ like we protect each other against our own branches/ ie if you guys are rhs .. and my nyk is lhs .. ill say my nyk lhs in few”

A numpty, for those unfamiliar with the term, is a common Scottish slang word for "idiot."

- from Law 360 https://www.law360.com/