Foreign exchange, Libor and Euribor manipulation. What else?
The right question in fact is not that, but which market is not manipulated? Can you guess the answer? No one. Markets are constructed and manipulated every day from the beginning and this Is often normal and even legal. This is true from the moment that have been invented words like; market makers, market movers, big players, liquidity providers ecc. Forget the Black and Sholes formula, theoretical prices, fair valuations, Reuters fix, balance between supply and demand or other kinds of financial terminology that can make you think, for a moment, that markets prices in every moment are the right value of what you are buying or selling. Years before Mr. Silvio Berlusconi explained well enough how the market functions. He affirmed that the markets tell us the right price, once every year probably. This is how our society functions. How our “free market” fix the value of assets. Till now we have not found yet something better.
Now, let’s have a look to what is going on with these scandals. After we get addicted to the Libor and Euribor scandal another financial and global storm came out. In year 2013 the foreign exchange manipulation scandal exploded. In the same year the biggest financial institutions of the world involved in the process (UBS, Deutsche Bank, Royal bank of Scotland, Barclays, HSBC, Citigroup, JP Morgan) have shelved around $16 billion to cover the provided legal expenses. In 2014, for the same reason, around $10 billion have to be shelved by these institutions. The same banks agreed to pay $3.4 billion in 2014 to the authorities for their roles in the scandal. This is less than the amount their own have shelved for the issue.
The Forex exchange manipulation have involved also the Bank of England. The governor of the central bank has been called to testify about the scandal. There are doubts that the bank of England has notified the banks, that the way they were operating was not legal.
The tactics the traders used were different but authorities are focusing in two particularly, the Chat Rooms and the Reuters Fix. Traders are accused to have contact with each-other toward chats on the Bloomberg and Reuters platforms and to have fixed the target prices of the currency pairs. The price movements were piloted so they can profit from it without taking risks. The other way to take huge profits was the Reuters Fix. Traders use to open positions 60 seconds before the communicated price from Reuters. They use to sell or buy to clients that didn’t know yet the Reuters price and use to have intention to execute orders at that price. This was a zero risk operating method and also illegal.
In our free market every player can take positions and assume risks. Every investor can try to preview the market movements and price values. Obviously they can’t agree to fix the price previously and also they can’t use the insider information to profit from it. This is not fair against smaller investors. This mode of operating of the market doesn’t favor the smartest investor but the biggest. If we want to have equal opportunities in the financial markets we have to start changing something.