Tag Archives: Barclays

Barclays Gets Washed Up in Dark Pools and High Frequency Trading

By Barry Elias | Friday, 30 Oct 2015 07:02 AM

Barclays Bank seems like it is next in line to settle with the authorities regarding its dark pool operations.

In recent years, the Securities and Exchange Commission (SEC) and the New York State Attorney General (NYSAG) have focused on the disruptive nature of dark pools and high frequency trading: especially when used in tandem, as the authorities allege to be the case with Barclays Bank. The SEC and NYSAG claim Barclays misled its clients into believing high frequency traders would be less active in their LX dark pool trading venue.

Dark pools are essentially private, anonymous, off-exchange and opaque venues that permit the trading of exchange-listed securities. This structure helps camouflage the trading strategies of large financial institutions, such as mutual funds, pension funds, hedge funds, and insurance funds to afford them optimal profits or minimal losses. These venues are lightly regulated, require less public disclosure, do not carry the same protective margin requirements as the public exchange marketplaces, and allow banks to forego paying fees to exchanges for trade execution.

Dark pool trading as a percentage of total trading volume more than tripled from 4 percent in early 2008 to nearly 14 percent by the end of 2011, according to Rosenblatt Securities. Haoxiang Zhu, a financial economist at the MIT Sloan School of Management and the author of a new paper in the Review of Financial Studies, cites a study in which 71 percent of financial professionals believe dark pools are “somewhat” or “very” problematic in establishing stock prices.

Despite denying any wrongdoing and fighting this case, Barclays is in serious discussions to pay a fine of $65 million.

Thus far, two firms have agreed to pay fines related to this activity: $14 million by UBS Group and $20.3 million by Investment Technology Group, which has admitted to wrongdoing in its case. A third, Credit Suisse, has a planned agreement to pay an $85 million fine.

To evade recent proposals that would regulate and undermine dark pool trading, some U.S. banks are conducting their derivative trades through non-U.S. subsidiaries that do not have explicit guarantees from the U.S. parent.

The SEC and other regulatory bodies need to keep the playing field level for all, and where possible, prosecute individuals as a more effect deterrent.

© 2015 Newsmax Finance. All rights reserved.

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.

Banks Bank on Saving Billions Using Bitcoin Blockchain

Newsmax_Image_092515_BanksBankonSavingBillionsUsingBitcoinBlockchain

By Barry Elias | Friday, 25 Sep 2015 09:36 AM

Banks are investing millions of dollars in the development of the bitcoin blockchain technology in the hopes of saving billions of dollars down the road.

Nine investment banks are collaborating with start-up R3CEV, a New York-based group of trading and technology executives, to develop governing standards and procedures to implement a more effective and efficient settlement system for asset movements between counterparties. They have invested several millions of dollars in seed capital with R3CEV thus far for the research, experimentation and design of prototypes.

The blockchain methodology is viewed as an instant, real time update of payment ledgers in multiple locations without a single, centralized authority overseeing the process. Banks, financial exchanges, and settlement clearinghouses are exploring how to harness this technology for the automatic execution of contracts that could potentially save billions of dollars in bank operational expenditures.

The nine investment banks are Goldman Sachs, JPMorgan, Credit Suisse, Barclays, Commonwealth Bank of Australia, State Street, RBS, BBVA, and UBS. Many banks, including Barclays and UBS, are working toward their own blockchain model or partnering with other start-ups, as a way to hedge their bets and align with the best possible option in the future.

Advocates of this industry collaboration point to the successes of other ventures such as the Depository Trust Clearing Corporation, to clear trades for corporate stocks and bonds, municipal bonds, and money market instruments; the CLS, to clear funds for global currency trades; and the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a global financial messaging system.

Circle Internet Financial recently became the first firm to be issued a BitLicense by the New York Department of Financial Services (DFS), permitting it to offer digital-currency services in New York. The company was founded two years ago and backed by Goldman Sachs.

The DFS said 22 firms applied for the license, including CoinSetter, Consensys, Gemini (founded by Cameron and Tyler Winklevoss), ItBit, and Symbiant, and it expects more approvals shortly.

The BitLicense was originally introduced by then- DFS Superintendent Benjamin Lawsky in January 2014. The license allows digital-currency firms to expand their services while protecting clients with anti-money-laundering compliance and cybersecurity protocols.

Circle is able to offer mobile payment services to receive, hold, and send U.S. dollars and bitcoins via text messaging that does not require conversions from one form to the other.

Circle is pursuing this same option with other currencies, such as the euro.

There seems to be no turning back from bitcoin.

© 2015 Newsmax Finance. All rights reserved.