On Wednesday, the Financial Conduct Authority published chatroom messages showing how traders worked together to manipulate the benchmark, including “how can I make free money with no fcking heads up” [sic] and “cheers for saying you were same way helped me go early”.
Foreign exchange dealers usually quote two prices – for buying or selling a particular currency pair – making their money from the spread between the two rates. But banks offering a fixing service guarantee their clients the market mid-rate at this point in time. Traders with big orders to process therefore risk losing a significant amount if the market moves against them in the run-up to the fix – and the incentive to collude and try to make the exchange rate move in their favour is strong.Other messages showed the traders’ fear of being found out: “[don’t] want other numpty’s in mkt to know [about information exchanged within the group] but not only that is he gonna protect us like we protect each other.”
The shared information allowed them to match up orders and align trading strategies at and around the fix. A fix is a benchmark rate based on trades taking place in a given time window; and certain fixings, especially the WM Reuters rate used in calculating key global bond and equity indices, are popular with asset managers who want to trade at the same rate used to value their portfolios.
The FCA detailed one example of how some traders at Citi were able to manipulate the 1.15pm daily fix of exchange rates by the European Central Bank.
On the day in question, Citi had net buy orders of €200m and would benefit if it was able to move the ECB fix rate upwards.
Traders were able to “build” this order to €542m by using chatrooms to co-ordinate with traders at other firms who transferred their buy orders to Citi.
Furthermore, traders in a chatroom with net orders in the opposite direction to the desired movement at the fix sought to transact before the fix with traders outside the chatroom. The FCA said this practice was commonly referred to as “leaving you with the ammo”, building the volume of orders held by the traders in the chatroom in the desired direction and increasing their potential influence on the fix.
Having netted off its sell order with another party, one trader commented in the chatroom: “U shud be nice and clear to mangle”. The FCA said: “We read the word ‘mangle’ in this context as an attempt to manipulate the fix.”
In the 15 seconds before the ECB fix, Citi placed four buy orders of increasing size and price which were priced at a level above the prevailing offer price. The FCA said Citi’s trading in this case generated a profit of $99,000.
After the fix, traders in the chatroom commented: “impressive”, “lovely” and “cnt teach that”.
The FCA gave an example of how on one day it believed HSBC was involved in the manipulation of the 4pm WM/Reuters fix for the sterling-dollar rate. It allegedly colluded with traders from at least three other banks who, like it, were wanting to drive the rate lower.
From transcripts of chatroom conversations, about half an hour before the 4pm fix, a HSBC trader says “Let’s go”. Reply from Firm A: “yeah baby”, then: “hopefuulyl a fe wmore get same way and we can team whack it” [sic].
A trader from Firm D tells the trader from Firm A to “bask the fck out of it”.
Firm A then tells HSBC that a deal has been done with Firm E, which is buying. “Taken him out . . . so shud have iot rid of main buyer for u . . . im stilla seller of 90 . . . gives us a chance” [sic].
HSBC ended up selling £70m between 3.32pm and the start of the fix window. The FCA said these early trades were designed to take advantage of the expected downwards movement in the fix rate following the discussions within the chatroom.
In that time, the rate fell from $1.6044 to $1.6009.
HSBC then sold £311m during the fix window. HSBC and Firms A-C accounted for 63 per cent of the value of sales on the Reuters platform that day. The fix price was eventually $1.6003.
After the fix the traders said the following in the chatroom:
“Nice work gent . . . I don my hat”, “dont mess with our ccy [currency]”, “loved that mate . . . worked lovely . . . pity we coldn’t get it below the 00” and “we need a few more of those for me to get back on track this month”.
HSBC’s profit in this trade was $162,000, the FCA said.
The FCA gave an example of a day when it says JPMorgan attempted to manipulate the 4pm WMR euro-dollar fix rate.
JPMorgan had net buy orders of €105m and wanted to move the fix rate up.
In a chatroom conversation, it offers to transfer this order to Firm A. Firm A says “maybe”. Firm A is buying €150m at the fix “for a top [account]”, adding “i’d prefer we join forces”. JPMorgan replies “perfick . . . lets do this . . . lets double team em”. Firm A replies “YESsssssss”. Later Firm A says to JPMorgan; “I got the bookies covered”, referring to dealers in the interdealer broker market.
By the fix, JPMorgan had built orders of €278m while Firm A’s orders were €240m.
We were EPIC at the fix yest
- Firm A
JPMorgan bought €57m in the two minutes before the fix window. The FCA said these trades were designed to take advantage of the expected upwards movement in the fix rate following the discussions within the chatroom.
During the fix window, JPMorgan bought €134m and Firm A bought €125m. Between them they accounted for 41 per cent of the euro-dollar trade.
‘So couldnt have been that $hit a week!!
- Firm B
JPMorgan’s profit in this trade was $33,000.
The FCA used an example of RBS attempting to manipulate the WMR GBP/USD fix on a day when it had net client sell orders at the fix and would benefit if it was able to manipulate the WMR fix rate lower.
Ahead of the fix, RBS shared information with other traders in the chatroom causing two of them to “net off” their buying and selling orders. Another firm responds by netting off part of its sell order with two other parties outside the chatroom.
The FCA said this practice was known as “clearing the decks” as traders netted off their orders with third parties outside the chatroom reducing the volume of orders that might otherwise be transacted at the fix in the opposite direction.
In a separate chatroom, RBS told three other traders: “We getting a lot Betty at fix” which the FCA said was trader slang for sterling/dollar, coming from “Betty Grable” which rhymes with “cable”.
‘We fooking killed it right’
In the period leading up to the 4pm fix, RBS built the volume of currency it sold to £399m which the FCA said “was designed to take advantage of the expected downwards movement in the fix rate following the discussions within the chatroom”.
The FCA said that RBS made $615,000 profit on this trade.
The FCA gave an example of an occasion when it says UBS attempted to manipulate the 1.15pm ECB euro-dollar fix. UBS was a net seller and wanted to move the rate lower.
Ahead of the fix UBS had net sell orders of €250m, Firm A was selling €200m, while Firm B was selling €100m. Firm A’s order’s dropped to €100m but it said “hopefully taking all the filth out for u . . .”, meaning it had netted off some of its orders with people who might have traded against UBS.
Firm A and UBS then said they had done short trades, each of €25m. Firm B then indicated that these short positions should be held for only 12 minutes, i.e until the ECB fix.
Firm A says it is now selling €50m at the fix. “I getting chipped away at a load of bank filth for the fix . . . back to bully [meaning €50m] . . . hopefully decks a bit cleaner”.
By the fix, UBS had sell orders of €200m and had increased its short position to €50m. Firm B had a short position of €50m. Firm C, a buyer, netted off with Firm A and Firm B, leaving it with €10m to buy at the fix.
Firm B then advised Firm C to “go late”, when the rate will be lower. Firm B copied into the chat a note from UBS, which said an earlier fix was “the best fix of my ubs career . . .” Firm B then added: “challenge”. Firm C replied “stars aligned”.
UBS’s net sell orders were €211m at the time of the fix.
At 13.14.59 UBS placed an offer to sell €100m at 1.3092, 3 basis points below the prevailing best bid. The ECB subsequently published the fix rate for euro-dollar at 1.3092. UBS’s order accounted for 29 per cent of the orders at the 1.15pm fix.
UBS’s trading in this example generated a profit of $513,000.
In the US, the Commodity Futures Trading Commission also published transcripts from chatroom conversations between traders:
Three traders from Citi, JPMorgan and UBS discuss whether to invite a fourth into their private chatroom:
“Will he tell rest of desk stuff . . . or god forbid his nyk [New York office],” one trader asks. “That’s really imp[ortant] q[uestion],” another trader responds, adding: “dont want other numpty’s in mkt to know [sic] . . . is he gonna protect us like we protect each other against our own branches?”
A trader from HSBC visits multiple chatrooms in an attempt to manipulate the 4pm WMR fix, declaring he is a net seller in “cable” (a slang term for GBP/USD currency pairing):
“Hopefully a [few] more get same way and we can team whack it,” one trader responds. “ill do some digging”, says another prompting others to disclose their positions.
Simultaneously, in a separate private chatroom, the same HSBC trader informs other traders they should buy “cable” at the fix:
“Get lumpy cable at the fix ok” he said. A second trader replied “ta mate”. As the 4pm fix period closes, the HSBC trader comments: “I sold a lot up there and over sold by 100 hahaha”.
In another private chatroom, the HSBC trader discloses his position with traders at other banks before the closure of the fix period. The traders then share information about the size and direction of the orders at the fix period:
“You getting betty [Betty Grable, rhyming slang for cable] on the mumble still? We have nowt,” one trader asks. He then says: “Get it up to 60/70 then bash the fck out of it”.
Traders from Citi and JPMorgan co-ordinate within a private chatroom in an attempt to manipulate the EUR/USD fix:
“OK, I got a lot of euros,” says the first trader. A second trader responds: “ill take it if u dont want it”. The first trader replies: “lets double team it . . . how much u got?” and they jointly agree a trading strategy. Just after the 4pm fix, the first trader reported he was “hosed” and the second trader responded “ditto”.
Traders from UBS share their “scores” in a private chatroom:
Traders from UBS and three other banks exchanged their positions leading into the WMR 4pm fix. Once all four determined they were going to be trading in the same direction, one asked if “we gonna be able to get it to 05” to which another responded: “is that the royal fkn we?”. After the fixing window had closed, the chatroom members gave their “scores” or profits from the fix each claiming they made between $60,000 and $220,000 prompting one to add: “nice call”.