Citigroup Hit Hardest as EU Fines Banks $1.2 Billion Over FX


Citi group was hit the hardest of the five banks that agreed to pay European Union. Fines totaling one point two billion dollars for colluding on foreign exchange trading. Tragedies traders ran to cartels on online chat rooms that were called the Essex express in the Jimmy the three way banana split and semi grumpy old men. Joining me a securities attorney David Bessinger a partner at pissing off Schmidt and Williams. Dave explain how the traders worked in manipulated, the benchmark foreign exchange rates in these rather colorful chat rooms. While there's three basic strategies I think L I is good old front running securities markets as well. And that's when I traders aware of the going price and has his own or her own proprietary position. And at the same time also obligated to sell for a customer and tells the proprietary, I the customers disadvantage say, for example, if I'm trying to sell an eighty thousand dollars tesla. And I can sell it at eighty five thousand I sell mine I before I sell my customers by selling mine. It's gonna have it negative downward effect on the pricing. The second strategy is called banging the clothes and in the foreign-exchange market, the measured volume or the dollar amount. But by the volume of trades. And so this strategy would be breaking up. Maybe one trade into fifty and by doing it. There were a lot more traces certain price, which manipulated the market. And then finally, there was a strategy called painting, the screen and painting, the screen fake orders in the market to perpetuate an illusory price and then broker can sell his or her own proprietary positions. There's other strategies but those three are predominant in the regulatory actions. So now the EU Commissioner McGrath said these fines will send a message, while they're certainly large they're lower than the one point three billion euro penalty for banks for rigging Europe or rates and below the record three point eight billion euro penalty for collusion. So how much of a message is it really sending? Well, that's a big economic question. It's hard to measure. Evaluated is, you know, this is just the latest that you mentioned you have the euro or scandal before you had the library scandal before that you've had the same banks involved in the credit crisis. You had them in the tech wreck and all sorts of other things. Certain point one must ask what the regulators having scandal after scandal. So perhaps your question is raising legitimate concern that these are not severe enough. One of the banks are said that quote this kind of behavior has no place at the Bank. We are today. Our culture and controls have changed fundamentally during the past ten years. Is that true or is there room for something like this to happen? Even today at these banks, did you have to I suppose take that spokesperson at his or her word? But, you know, the real issues when you look at the massive size of these banks, for example, this scandal in the forex market, the banks comprising the global group that were sued both by regulators in the. US. EU. Elsewhere marketed about five point three trillion dollar trades per day that was just in the four x then you have all of the other activities. They have in a number of areas from securities, underwriting, too bonds on issuance to, you know, all the instruments during the credit crisis. So you look at the large reach these banks, perhaps, we have another four x scandal. But it does seem to make you wonder if we'll have the scandal somewhere else. Dave, I was trying to go through the investigations that are pending. There's another investigation, Bob in Credit Suisse in this area, another looking at the trading of euro-zone sovereign bonds, another potential coordination options trading in the FX market. There are so many investigations. What does that say about the way the banks are operating in the traders are operating? Well again, it's such an incredibly huge market. And so when you look at just the release it, we're talking about, you know, the ease variety of text messages. And like you say, in the introduction, you've got the Essex express and so forth. But then you go back, Bloomberg ran the first story I think, apparently in June twenty thirteen and there was a whole host of other foreign exchange channels. As part of that came out through class actions, the United States, actions and so forth. So it's hard to imagine regulators getting their hands around everything. Because again, it's just such a huge market when three British traitors in a group known as the cartel were tried there were actually acquitted by federal court last year of using a chat room to coordinate trades and manipulate prices, what did they show that led the jury to acquit them I can't speak to that instance? But I think one of the problems that you see in a lot of the allegations is that the regulators will try to insinuate wrongdoing because of. Nicknames. For example, that British pound to the US dollar trade is called the cable the New Zealand dollar to the US dollar is called the Kiwi. They have enormous numbers of nicknames. A lot of them are kind of cockney flying to make the traders look bad. And the traders are legitimately allowed trading to communicate and they're gonna communicate often like everybody else does these days by text. And so a lot of the texts are a lot of them involve trading and taking and to convict criminal court, you've gotta show guilt beyond a reasonable doubt. You typically would have to show intent and a jury is gonna wrestle with those

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