In London, foreign-exchange dealers went against restrictions on personal trading when information on client orders were given to day traders in order to place personal bets. According to a few individuals who witnessed the acts, traders used their cellphones and terminal instant-messages to relay information regarding client orders, and then day traders made bets on the direction of the currencies with any profit being divided amongst the party in cash.
The worldwide probe on the forex markets are showing the underbelly of the markets where institutional personnel who bypass restrictions that prohibited personal gain on client information. The scope of these incidents have been reported in London’s financial district, “The City,” and unregulated sites in Kent and Essex.
Tom Kirchmaier, a fellow in the financial-markets group at the London School of Economics, said that “it’s almost impossible for banks to have a lid on it – unless they find a way of controlling all forms of communication out of the trading floor.” Although, one would assume safeguards against client order information from being routinely transfered from one party to another.
The Financial Conduct Authority (FCS), a British regulator, has extended the extend of their probe into the FX markets. Prior to this new information, probes were conducted on whether or not rates were manipulated through the 30 second window of opportunity when the WM/Reuters rates are being calculated.
Now, the FCA has extended the probe on the possibility that traders were using this information to profit on their personal trading accounts. Is is illegal to pass on insider information on client orders to third parties. Those knowledgeable about the manipulation said that institutional traders would potentially send client information to traders that had industry experience.
The FCA is collaborating with the Commodity Futures Trading Commission (CFTC) and the US Department of Justice (DoJ) with ongoing investigation in the FX markets that have included at least seven of the world’s largest banking institutions.