Category Archives: finance

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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Too Big to Jail Is Being Tested by US LIBOR Trial

Friday, 16 Oct 2015 07:27 AM

Dollar banknotes, handcuffs and judge's gavel isolated on white

Financial behemoths have paid handsome penalties to settle criminal and civil charges related to manipulation of the LIBOR. Now American citizens may be in jeopardy, thereby disrupting the implication that bank employees are “too big to jail.”

In recent years, more than $5 billion have been ponied up by several financial institutions for these transgressions: $2.5 billion from Deutsch Bank, $1.5 billion from UBS, $450 million from Barclays, and $325 million from Rabobank. Other perpetrators include Citigroup, The Royal Bank of Scotland, JP Morgan, Lloyds, and ICAP.

LIBOR, or the London Interbank Offered Rate, is the interest rate paid by banks to borrow funds from other banks. It represents the average lending rate offered by the 16 participating banks. These offers are submitted daily to the British Bankers’ Association for five currencies and 7 borrowing periods, spanning overnight to one year loans. Other lenders, including financial institutions, mortgage banks, and credit card companies set their rates relative to these. It is estimated that $350 trillion of derivatives and other financial products are based on the LIBOR.

The Justice Department issued a memo last month that prioritizes the investigation of employees for financial malfeasance before seeking settlement with corporations. In an important test for U.S. prosecutors, two Rabobank employees are now being tried in a Manhattan federal court for manipulating LIBOR in order to benefit other Rabobank traders’ trading positions that were tied to the LIBOR. The traders on trial are Anthony Conti, a senior U.S. dollar trader, and Anthony Allen, a former global head of liquidity and finance, and supervisor of Rabobank’s Libor submitters, including Mr. Conti. They are alleged to have conspired to rig the rate on or about May 2006 through early 2011.

Thirteen individuals have been charged thus far in the U.S. in relation to the LIBOR investigation. While several defendants have pleaded guilty, including three other former Rabobank traders, none have gone to trial yet. Six former brokers accused of rigging LIBOR are currently on trial in the U.K. This comes on the heels of Tom Hayes’ conviction in London several months ago. He was a former UBS and Citigroup trader sentenced to 14 years for LIBOR manipulation.

Former Federal Reserve Chairman Ben Bernanke believes some Wall Street executives deserve jail time for their roles in the financial crisis, since individuals, not abstract firms, committed these crimes. He lays the blame with the Department of Justice and others who are responsible for enforcing the laws of our country.

Wide swaths of the political spectrum are extremely dismayed with the way the financial industry operates. In the recent debate, democratic presidential candidate Bernie Sanders claimed the banking business model is one predicated on “fraud.” And republican presidential candidate Donald Trump believes too many in the financial industry do not pay their fair share of taxes.

The maximum tax rate for capital gains on financial products is 23.8 percent, while that for ordinary income is 39.6 percent. Further, unlike ordinary income, capital gains are not subjected to social security taxes of 12.4 percent, which is shared equally by the employee and employer.

The only effective deterrent to financial misdeeds is the possibility of personal punishment.

© 2015 Newsmax Finance. All rights reserved.