“The players”, “the A team”, “the 3 musketeers” – forex traders loved to revel in macho pseudonyms. Such banter was common in chatrooms when they were sharing information about currency orders in their attempts to manipulate the forex fix and formed a large part of the Financial Conduct Authority’s investigation.
On Wednesday, the watchdog 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”.
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.”
A fix is a benchmark rate based on trades taking place in a given time window. Before the fix, clients place orders to buy or sell currency at a specific volume at the fix rate, which is yet to be determined. Firms will profit if the average rate at which they buy in the market to fulfil these orders is lower than the fixed rate at which they later sell to their clients.
Citi
The FCA detailed one example of how 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 chat rooms to co-ordinate with traders at other firms who transferred their buy orders to Citi.
Furthermore, traders in the 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, the traders in the chatroom commented: “impressive”, “lovely” and “cnt teach that”.
HSBC
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 firms 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”, “bravo . . . cudnt been better”, “hooray nice team work”, “have that my son . . . v nice mate”, “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.
JPMorgan
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.
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.
Afterwards, in the chatroom, Firm A said: “sml rumour we haven’t lost it”, “we . . . do . . . dollarrr”. The next day Firm A said to firm B in the chatroom: “we were EPIC at the fix yest”. Firm B replied: “yeeeeeeeeeeeah”. Firm A said: “i dragged [JPMorgan] in, we covered all the bases b/w us”. Firm B said: “so couldnt have been that $hit a week!!”
JPMorgan’s profit in this trade was $33,000.
RBS
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”.
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”.
Before the fix, one trader commented in the chatroom: “nice job gents”. After the fix traders commented: “I don my hat”, “well done lads”, “bravo” and “we fooking killed it right” [sic].
The FCA said that RBS made $615,000 profit on this trade.
UBS
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, ie 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
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