LONDON – It has become a common occurrence whenever a major bank settles with regulators over misconduct: the lewd and, sometimes, cringeworthy language traders use to communicate daily emerges in chats or emails.
The latest comes from an inquiry by the Financial Conduct Authority of Britain into attempts by traders at five global banks to manipulate benchmark rates for foreign currencies.
HSBC, Citigroup, JPMorgan Chase, UBS and the Royal Bank of Scotland have agreed to pay more than $3 billion to British, American and Swiss regulators over attempts to improperly influence the currency markets.
The British authority said traders at various banks gathered in exclusive, sometimes invitation-only, chat rooms to share information about client orders and plot trades in order to move benchmarks between a variety of currencies, such as the United States dollar to the British pound, or the euro to the dollar.
Their firms could potentially profit if traders, for example, were able to send the price of a currency higher at the so-called fix – the brief period when a currency is measured during the day – than the average price their firm paid for the currency throughout the trading day.
The traders gathered in chat rooms with a variety of colorful names, including “the players,” “the 3 musketeers” and “the A-team.” They also referred to clients by code names, in order to avoid revealing any identities. Comments were often laced with expletives as one trader asked “how can I make free money” without a heads up.
The Financial Conduct Authority provided examples of how traders valued the information being shared and made sure it was clear that it was to be kept confidential:
When considering whether to invite another trader to join a particular
group, a UBS trader checked with other traders in that chat room.
“are we ok with keeping this as is [if the new trader joins]… ie info lvls [levels] & risk sharing?”
In the same discussion, another trader in the group from a different firm expressed his view that they “dont 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.”
And collusion was often unchecked, as one trader promised another that he was “hopefully taking all the filth out for u.”
The Financial Conduct Authority said traders at the banks would go to the chat rooms to see if other traders were trading currency in the same direction and would agree to share orders in an attempt to drive the price of a currency up or down at the fix, a process known as “building” or “giving you the ammo.”
In one instance, a trader at an unidentified firm asked a trader at JPMorgan if the trader planned to buy euros ahead of the fix.
At 3:46 p.m., Firm A then stated “i’d prefer we join forces.” JPMorgan responded “perfick…lets do ths…lets double team em”. Firm A replied “YESsssssssssss.” The Authority considers these statements to refer to the possibility of JPMorgan and Firm A co-ordinating their actions in an attempt to manipulate the fix rate higher.
In another instance, a Citigroup trader conferred with colleagues at four other firms to see if they were looking to buy euros, as Citigroup had an order to buy €200 million at the fix price.
The Citigroup trader agreed to take on the orders of several firms, in order to make a big splash ahead of the 1:15 p.m. euro-dollar fix as measured by the European Central Bank. But one trader in the chat room – a trader who worked at a company simply referred to as “Firm A” in the F.C.A.’s findings – was selling, rather than buying euros, creating a potential problem.
At 12:56pm, Firm A informed Citi that it had netted off its sell orders with another counterparty. Firm A told Citi that “u shud be nice and clear to mangle.” This is an example of “leaving you with the ammo”.
The Authority considers that the reference to “mangle” referred to the opportunity for Citi to attempt to manipulate the ECB fix.
With that obstacle out of the way, the Citi trader was able to send the euro higher ahead of the fix and made a $99,000 profit in a series of transactions that took 33 seconds.
In another chat, the Financial Conduct Authority said traders at HSBC and another firm discussed their need to sell British pounds at the fix and their hope they could profit by driving the price down below the average price they were selling pounds.
At 3:28pm in a chat room which included HSBC, Firm A expressed the hope that other traders would also have sell orders at the fix
(“hopefulyl a fe wmore get same wayand we can team whack it”).
The HSBC trader and traders at three other firms ultimately accounted for 63 percent of the pounds to dollars sold during the fix window, driving down the price of the pound against the dollar and generating a $162,000 profit for HSBC, the authority said.