Category Archives: banking

Barclays Bankers Bilk Their Clients

By Barry Elias | Thursday, 19 Nov 2015 10:45 PM

“Obfuscate and stonewall.”

That was a June 2011 directive from a Barclays managing director and head of automated electronic foreign exchange (FX) trading. It was the recommended response to inquiries from clients, the sales department, or virtually anyone else regarding bank transactions related to its BATS Last Look functionality, according to the New York State Department of Financial Services (DFS).

The managing director further stressed in the email that one should “avoid mentioning the existence of the whole system.”

Barclays’ “Last Look” functionality enabled traders to cancel the execution of client foreign exchange orders if they were deemed unprofitable to the bank, even if they would be profitable to the client.

Milliseconds became the difference as to whether a trade was executed profitably. Since it could take this amount of time to transmit an order across the globe, the bankers were at a disadvantage relative to the high frequency traders, who can execute within nanoseconds. Instead of quoting greater buy/sell spreads to accommodate potential price movements, which would disenfranchise the algorithmic traders, Barclays opted to possess the right of first refusal for the trade on behalf of its client.

Clients and others were not told the trade terminations were the result of this business policy decision. Senior employees instructed traders and information technology employees not to inform the sales staff of Last Look and the underlying policy. Instead, the information conveyed was vague, misleading, or inaccurate – and sometimes they were not given any explanation. Blaming the malfunction on technical latency issues was a recommended strategy from management.

This case was unleashed during the forex rigging probe, for which Barclays agreed to pay about $2.4 billion to the DFS, the U.S. Justice Department, and other agencies, which included $485 million for its manipulation of forex spot trading. This settlement was part of the more than $5.6 billion agreement by six banks for manipulating the $5.3 trillion daily foreign exchange market. The other five banks include Bank of America, Chase, Citigroup, JPMorgan, Royal Bank of Scotland, and UBS.

Barclays recently agreed to pay $150 million to resolve the “Last Look” allegations of abuse in the foreign exchange market through its electronic trading platform: a very serious charge, since it intentionally sought unfair advantages over clients and counterparties through this venue. The DFS also required the bank to fire its global head of electronic fixed income, currencies and commodities automated flow trading. Barclays has not named the dismissed individual and has admitted to wrongdoing in this case.

This settlement will bring the total litigation provisions for Barclays Bank to about $13 billion since the beginning of the financial crisis. Litigation costs for all financial institutions since 2008 have reached nearly $219 billion, most of it borne by U.S. banks, led by Bank of America with about $70 billion, according to Moody’s, a rating agency. They expect more to come, especially from Deutsche Bank’s exposure to foreign exchange litigation and the Royal Bank of Scotland’s exposure to U.S. mortgage litigation.

Barclays is still not off the hook: It is being investigated for other potential misconduct, including possible manipulation of precious metals markets and payments to Qatari investors in its 2008 rights issue.

Even after the crisis, Barclays continued down the road not to be traveled.

© 2015 Newsmax Finance. All rights reserved.

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Bankers Getting On-Board With Bitcoin Blockchain

By Barry Elias   |   Friday, 04 Sep 2015 12:50 AM

NewsmaxImage_090415_BankersGettingOn-BoardWithBitcoinBlockchain

Bankers are going bonkers for the bitcoin blockchain.

Go figure. Several years ago, the financial industry was abhorrently opposed to the introduction of bitcoin, a virtual currency that would revolutionize the way we conduct our banking business. Fearful of a massive professional upheaval, the financial cognoscenti steeled themselves in undermining this virtual currency.

Fast forward a few years, and ironically, Wall Street is now the largest proponent and investor in this space and the momentum continues to grow.

The financial industry has taken exceptional note of the possible applications of the blockchain distributed ledger methodology that underpins the bitcoin technology. Essentially, the blockchain functions as a trusted “third party” to verify the validity of a digital asset transfers. However, this third party is comprised of the entire universe of bitcoin market participants, rather than a centralized authority subject to unpredictable behavior. Digital miners independently confirm that all the ledger transactions are bona fide, for which they are compensated.

The blockchain method is now being viewed as a way to digitize any good or service so its ownership can be transferred accurately, timely, cheaply, transparently, and securely. In particular, the financial industry has its eye on utilizing this ledger system to trade currencies, public and private equities, corporate bonds, and syndicated loans.

Goldman Sachs, Santander and BBVA have invested in start-ups that focus on harnessing this technology. Citigroup and JP Morgan have been conducting internal groups to assess how best to enter this area. And Barclays would like to implement this technology to offer consumer products that are less expensive than credit cards and direct money transfers.

Bank of America and more than a dozen financial institutions have met with R3Cev to coordinate a foreign currency exchange platform using the blockchain ledger apparatus. This has huge implications, since the daily trading of foreign currencies was $5.3 trillion in April 2013, according to the September 2013 Triennial Survey of the Bank of International Settlements.

Nasdaq OMX Group has embarked on what may be the largest project in this area. It would like to use the blockchain to process privately held equity transfers. Currently, these transactions take as long as several weeks to complete. The Nasdaq Group believes this new methodology is more efficient, transparent and secure than the current techniques.

The U.S. Federal Reserve Bank and the Bank of England are also in the mix.

Further, the applications for other industries are significant, since this model provides a more effective and efficient accounting system. Governments are looking into this for more robust record keeping and the music industry sees potential in tracking and tabulating artist royalties based on internet download activity.

The consensus now among bankers is the blockchain technology is here to stay. The new question is not when it will be adopted, but how.

© 2015 Newsmax Finance. All rights reserved.