Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Forex Rigging Scandal and Market Manipulation

Currencies / Market Regulation Jun 12, 2013 - 08:49 PM GMT

By: Jesse

Currencies

The foreign exchange rigging scandal that is coming to light is very interesting, even in this time of financial scandals and corruption.

Here is the original Bloomberg story on it and you may wish to read it in its entirety.


The corruption in the enormous global foreign exchange market is coming to light not because of any surveillance by regulatory bodies. The multi-trillion dollar market is a genuine 'spot market' and is not considered a financial assets market, and is therefore lightly regulated.

As you may recall,  a certain liberal economic columnist asserted some years ago that it was not possible to rig the price of commodities using the futures market because the price is set in the spot market.  Well, he was wrong about that, since in those cases the spot price is a derivative of the front month in the futures. 

But with forex we do have an actual spot market, and apparently that principle does not hold even where there is an actual spot market, and of a size that most would assert that price fixing was not possible.  They forget that prices are set at the margins.

Efficient market theory dies hard because it is such a nice neat model and so attractive to the abstract mind.  That it is a mere fantasy is another matter.

The story came to light because very large customers went to the regulatory body in London and complained that they were tired of being cheated. The authority was forced to respond.

There is quite a bit of talk that nothing that was done was 'illegal.'

While that may be technically true from a regulatory perspective, there is sufficient evidence that traders from different companies were acting in concert to fix global benchmarks knowing with the intent to steal from their customers. If that is not the very definition of a criminal conspiracy I am not sure what would be.

And finally, despite its enormous size, the foreign exchange market was able to be rigged against customers because of the concentration of market power in a few hands, and the manner in which trades are placed, taken and executed.

From the Bloomberg story:

"While hundreds of firms participate in the foreign-exchange market, four banks dominate, with a combined share of more than 50 percent, according to a May survey by Euromoney Institutional Investor Plc.

Deutsche Bank AG (DBK), based in Frankfurt, is No. 1, with a 15.2 percent share, followed by New York-based Citigroup Inc. (C) with 14.9 percent, London-based Barclays Plc (BARC) with 10.2 percent and Zurich-based UBS AG (UBSN) with 10.1 percent."

We do not know what entities have been named in these revelations. These are merely the largest. We may never know depending on how the London regulators choose to dispose of it.

But it does shoot a gaping hole in the efficient markets theory. Here is a huge, widely dispersed market with literally millions of transactions affecting almost every economically involved individual in the world, and it became a chronically rigged market in a corruption scheme that went on for many, many years.

Put that in your free market neo-liberal pipe and smoke it.

I see where Singapore's regulator was threatening to reprimand the guilty parties. I submit that given the wide range of abuses and scandals that have been revealed and which are still ongoing, that there needs to be some serious action and soul-searching done about how markets are set up, what secrecies are permitted to the major players, the asymmetric distribution of information, and the invariable and pernicious, official sanctioned secrecy that marks every single financial fraud which we have seen over the past twenty years.

Secrecy is a privilege that has a limited place in markets that are honest, efficient and effective.

And I am sorry but if you still choose to believe that the markets, even very large and significant ones, are not being routinely rigged to the disadvantage of the public, then you are probably a fool, or a tool, or an obtuse, purblind ideologue.  

And that goes in spades for the precious metals and equity markets that are saturated with outsized position shoving, event driven price rigging, collusion, and high frequency front running as a normal order of business.

By Jesse

http://jessescrossroadscafe.blogspot.com

Welcome to Jesse's Café Américain - These are personal observations about the economy and the markets. In plewis

roviding information, we hope this allows you to make your own decisions in an informed manner, even if it is from learning by our mistakes, which are many.

© 2013 Copyright  Jesse's Café Américain - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Jesse Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in