EU charges eight banks over alleged government bond cartel
reuters.com
reuters.com
Roughly in the mid 2000s it got very common for people in the trading business to get on chatrooms. Bloomberg is probably the best known, but somehow Yahoo Chat also has a piece in the commodity space.
The chats go on constantly, and I would guess people just didn't think anyone would look through the records. Much like with squawk boxes, who would ever imagine someone listening to the recordings?
Similar cases have happened in FX and LIBOR, and it's quite clear what the incentives are. You might think that some banks are long and some short, thus cancelling out the market effect, but that's not the case. Often the trade that's popular is the same for everyone, so the banks are on one side and the customers on the other. So if you have a small group of banks that in a chatroom, it's quite tempting to collude.
You also have to think about how market making works. It's at heart an information business. If you know customers are going to be buying, you want to get inventory first and sell it to them. It's nice to be the first guy to do that but realistically you won't know what's up all the time. Makes good sense to have friends at other banks.
Are the groups an open secret to give legitimacy to the info, or is membership more controlled?
These ,,charges'' are part of the cost of doing ,,business''
Incarcerated former trader blames himself for trusting colleagues and superiors, laments his inability to push his side of the scandal in the press during the trial
https://www.fnlondon.com/articles/i-was-framed-by-ubs-tom-ha...
https://www.bloomberg.com/news/articles/2019-02-01/tech-s-eu...
It's also sounds like exactly the kind of thing bankers would like the public to believe and would try to influence media narrative to repeat it.
Innocent until proven guilty and all that.
This means that cliques along the lines of "I'll scratch your back if you'll scratch mine" form naturally. It's almost impossible to prevent as a lot of the trading happens directly between traders and never crosses exchange boundaries and even then, it's often tricky to prove collusion purely based on the trades. Official trading communication channels are monitored, but this is irrelevant if the deal can be pre-arranged privately off channel.
There are too many conflicts of interest in the entire industry really. It's not in the best interest of the banks to monitor their internals too closely. Sure, there are plenty of theatrics and checkbox-ticking exercises, but really, as long as it is cheaper to pay the eventual fines than to employ armies of auditors and actually give them the motivation and power to enforce the rules, it's not happening.
The internal controls themselves can be fairly annoying too. I remember a 6 month effort to get our legal department to clear a US fund launch because their incentive was to just reject every proposal. They don't directly get to see the benefits of a successful product, but would certainly feel the pain of one that gets into trouble for whatever reason.
So keep raising the fines. make them proportional to the banks turnover, or their perceived size if it appears that they are trying to disguise profits. The leadership of the banks need to follow the rules too, and make sure that the organisation follows those same rules. Maybe they should be held accountable when that doesn't happen.
As we found out when Health & Safety legislation was enacted which did this, it turns out that when you start holding people personally accountable for their actions (or lack of), then changes start to happen in the culture of the workplace. I walked around a factory recently and they take the health and safety of themselves, their colleagues and their visitors very seriously.
Of course that relies on someone actually being held accountable for a change...
Finance is too abstract for this to work. "Big Bank Co ABC defrauding other institutional clients by XYZ billions" is so far removed from common folk that they can't relate to it. Some politicians will make some token moves, which (as described in another comment of mine) will just end up funneling some money into another special interest group and that's it.
The Volcker Rule (part of Dodd-Frank) prohibits prop trading at banks (with few exceptions). The big banks have been actively discouraging it as well, changing comp structures to avoid rewarding prop trading.
> trading happens directly between traders and never crosses exchange boundaries
All these trades still need to be cleared, no? There's a structure to markets that you're papering over here.
> It's not in the best interest of the banks to monitor their internals too closely.
You may think this, but traders at banks are subject to tons of surveillance. Banks take lots of measures now to catch rogue traders even if it's just because they don't want dirty laundry being aired publicly.
Ok, replace prop trading with a fund trading OTC products that the bank runs.
> All these trades still need to be cleared, no? There's a structure to markets that you're papering over here.
They do, and as I wrote in a bit that you didn't quote, it's largely irrelevant because it's not that difficult to hide collusion. Heck, the guys fixing LIBOR did it successfully even with all the controls you claim the banks put in place.
> You may think this, but traders at banks are subject to tons of surveillance.
Yes, there is tons of surveillance. There is (in my experience) fairly little actually effective surveillance. For once, surveillance is never an interesting task. I consider it the same as guard duty. 99% of the time, nothing happens. Humans are not good at catching unexpected outliers. So you automate a lot of the checks, but these either produce too many false positives and thus bury the true problems in the noise, or they can be circumvented.
As I wrote, I consider the root cause to be a problem of incentives and conflicts of interest. No amount of patching with egregious audit and or lawyering will fix this. I consider statements like "but look at all the checks we already do" theatrics.
Look I'm in the industry. I have to complete 5 different training and educational courses every month, spanning from market abuse, to insider trading to fraud. Nobody takes this crap seriously and it is broadly considered a complete and utter waste of time. We have to fulfill a bazillion reporting obligations, but all of it is just a thin veneer of compliance to tick checkboxes. Every year, some chums from KPMG/PwC/<insert alphabet soup> come around, check that there are no obvious problems and rubberstamp everything. They find some token things which get reported and rectified so it looks like they actually do something.
I have friends who work in compliance/audit departments, and even those who want to do their work properly, run into problems because it's tricky to put heat on any group that is making money.
Most people I encounter in the industry are actually honest and hard working. Even though the checks are more or less easily circumvented, the majority of people choose not to do obviously illegal things. But to claim that the current setup is somehow successful at preventing shenanigans is dishonest.
So you’re the only person on HN who works in finance?
It's not prop trading...I'm just macro hedging which is completely fine
Problem I have with Econ 101 BS is this. Different industry, in the city I grew up in the four large electrical contractors get busted every 10-15 years for bid rigging city and county contracts. They pay fines, no one goes to jail. I feel like this sort of stuff also goes on with private bids, but it never gets called out.
In that kind of situation do the normal rules apply? I don't doubt during the banking crisis several 'dodgy' deals were done between the central banks, politicians, and banks. And if it stopped the entire global economy going tits up, I'm ok with that.
Now the devil is in the details obviously, this could just be a case of personal enrichment.
Yes.
Central banks, and some banks, have a political side in it which deals badly with rules. And off course, banks and political institutions are always filled with corruption so just looking at rules text doesn't say much about what is really condemned or not.
Upholding the law is significantly more important than saving some company, even if it's a large bank.
If you're going to throw law and order out of the window over saving some shitty banks, then you already have a bigger problem than disagreeable numbers on balance sheets.
It's about saving all the savings of other depositors, about preventing a run on that, and other banks, about trying to maintain the banking system.
Banking laws are meant to maintain stability. If they get in the way of that, they should at least be re examined.
You can change the law later as much as you like.
The point is upholding it in the first place and not adding subjective measures like "but it's not a good law!" into the equation when you determine guilt and fines.
Even if you immediately repeal or change the law, you still have to punish those that broke it.
I meant 're-examine' very broadly. And the 2 examples I've given so far in this thread have both involved the authorities.
I hope one thinks this can be done ad infinitum to maintain stability…
The accusation is that banks were manipulating an index to make their position more profitable at the expense of the client.
I don't see how the potential collapse of some third party (a nation) changes this. Surely you're not saying, hey Bank A ripped of Customer C but that's only because we didn't know if Greece was going under.
You seem to be suggesting that somehow a government might have let the bank do it to save themselves? I am not sure.
Your comment: "The accusation is that banks were manipulating an index to make their position more profitable at the expense of the client" Isn't mentioned in the article, do you have a better source?
Given that lack of detail, there is potentially a reasonable explanation.
I'm only suggesting this in extremis, your quote above wouldn't pass that test by a long way. 2008 might.
Eg if regulators asked banks to hold off selling Greek bonds for 48hrs to avoid trashing the price, while they sorted out a rescue deal. Trying to avoid at the same time, a domino effect on Italy, Spain, Ireland and Portugal.....
As I wrote in a different comment. The regulations are supposed to bring stability to the market. If the regulations stop doing that, they should be revisited.
These institutions have settled market rigging accusations in every market that any relevant government can weasel jurisdiction in.
It is personal enrichment, it is common practice, it is a kickback to the government, the normal rules are never clarified fast enough to keep up with the new markets, the rules can be changed if the banks want, settling a decade later isn't a deterrent, imagine what they are doing in 2019 right now that we won't hear about until 2030.
I'm agreeing with you.
Why? Genuinely - why is the corrupt financial system we've propped up worth saving?
What replacement financial system do you envisage? I cant think of a revolutionary financial system that I'm confident, could be better. And if its evolutionary, why would you chuck out what we've got?
I don't doubt the premise, I doubt the scale of the result.
>> I cant think of a revolutionary financial system that I'm confident
This might be true, but it is in no way revolutionary. Defaulting is a very normal routine in every capitalist system. That's why there is always a 'risk' involved when considering investments. After a big default, there would still be the necessity to trade, exchange, and hedge the risks of deals like that. All of this would be valued, given a price- and a risk tag and so on [business as usual -- except the weeds have been rooted out]...
What will be lost is "money" invested in "values" that werent values to begin with.
>> And if its evolutionary, why would you chuck out what we've got?
If it really is evolutionary, you should give evolution a chance and not intervene at the first sight of trouble.
If a gambler has made a bet on the wrong horse, and keeps betting on the wrong horse, with money you provided, wouldn't you be concerned? Instead of funneling even more money to the gambler, you might be incentiviced to find other options.
"why is the corrupt financial system we've propped up worth saving? "