Is forex market controlled by someone? - page 39

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How Goldman Sachs makes money on its top traders — after they quit

Goldman Sachs, one of the most profitable banks in the history of Wall Street, figured out a way to monetize relationships with its star traders, even as they left the firm in the wake of the financial crisis.

Goldman (along with other big banks) still had to find an opportunity to monetize ex-star traders. So it added its own stars to its own hedge fund platforms, which let Goldman simultaneously earn fees from valuable client relationships and make money from hedge fund managers that were quitting to launch their own funds.

But lets step back for a second.

Goldman Sachs’ trading desks once fueled massive profits for the investment bank — but that changed once regulators began forcing banks to dial down risk and instituted the Volcker Rule banning proprietary trading.

As a result, one trader who used to work at Goldman said that, post-crisis, there was an exodus of talent, leading to some of the bank’s top earners leaving to launch their own hedge funds.

“People ran for the exits,” after realizing the financial crisis would hamper the bank’s trading profitability, as well as their pay, said one ex-Goldman trader.

That trader, too, has since launched his own fund. But he still maintains a relationship with Goldman Sachs. Many ex-Goldman traders do, he said, once they split off from the bank.

And that’s just the way the bank likely wants it.

Goldman did not respond to requests for comment for this story; the ex-Goldman trader spoke with Business Insider under the condition that he, as well as his hedge fund, were not named, because he was not authorized to discuss his marketing relationship with the bank.

Speaking at the SALT Conference in Las Vegas last week, though, Howard Nifoussi, who serves as vice president of alternative investments at the bank’s investment management division, told attendees that in the last six years, his team has grown from zero to 19 people as it connected Goldman’s top clients with hundreds of leading hedge funds.

There is a fee that goes along with Goldman’s connections — but the bank doesn’t disclose what it makes linking high-net-worth clients to the hedge funds run by its former star traders.

Another source, which competes with Goldman for clientele (and for access to the same funds as the big bank) said that in terms of its reach to hundreds of hedge funds, as well as the talent of the traders, “Goldman is number one.”

Still, the source said, “they’re not going to make as much as they would have,” were Goldman allowed to operate hedge funds on its own balance sheet.

Last year, Goldman Sachs’ trading revenue was less than half what it was in 2009. What was once nearly $22 billion in annual fixed-income trading slipped to less than $9 billion.

That’s a steep drop for what once was the top bank’s largest line of business.

Goldman isn’t alone: in the wake of the financial crisis plenty of other Wall Street banks launched hedge fund platforms that served a number or purposes for all involved. At SALT, Nifoussi was joined on the hedge fund platform discussion panel by bankers from Deutsche Bank and Morgan Stanley.

For investors, banks' hedge fund platforms allow them to buy into hedge funds with less money than would be required ($1 million, or more, ordinarily). The catch, is that they must already have at least $25 million invested with the bank, at least in Goldman’s case.

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U.S. Senate approves currency manipulation clamp-down

May 14 The U.S. Senate on Thursday backed a trade enforcement bill with tough rules against currency manipulation despite objections from the White House that the measure would breach international trade laws.

The Senate voted 78-20 to pass the bill, which also toughens customs procedures and raises the threshold for customs duties for packages sent from overseas to $800, from $200.

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And what are they going to do against the whales?

Nothing (as usual)

 

Wall Street Demands Exemption From Punishment In Exchange For Guilty Pleas In FX Rigg

Just three days ago in “Wall Street To Enter Hollow Guilty Plea On FX Rigging, Return To Business As Usual,” we lamented the fact that the Justice Department’s latest attempt to convince an incredulous public that the government is willing to prosecute white collar crime at TBTF institutions (which includes an amusing 'crack down' on UBS which we outlined here) will ultimately end in nothing more than the payment of a token fine before it’s back to business as usual. We also noted that there are actually SEC regulations in place specifically designed to ensure that so-called “bad actors” are punished in a way that is actually meaningful to them and as such serves to deter the type of behavior that results in the buildup of systemic risk and the rigging, fixing and manipulation of every market and -BOR on the face of the earth. Specifically, we said the following:

Even after Wall Street firms essentially admit to committing egregious fraud by ponying up billions to settle allegations of manipulation, policies put in place to ensure that deep pockets don’t allow big banks to simply sweep scandals under the rug once settlements are doled out are systematically skirted. The latest example of this was Deutsche Bank, who, after paying $2.5 billion to settle allegations its traders conspired to manipulate all manner of -BORs, worked with the CFTC to have language inserted in the settlement agreement exempting the bank from a Dodd Frank rule that restricts so-called “bad actors” from taking advantage of exempt securities transactions.

The excuse for allowing Wall Street to skirt the very penalties that were put in place as a result of the very things for which the banks are now being prosecuted is two-fold: 1) there’s the so-called ‘Arthur Andersen effect’ whereby the decade-old collapse of an accounting firm and the layoffs that accompanied it are somehow supposed to represent what would happen if a Wall Street bank were not able to claim seasoned issuer status, and 2) curtailing a major bank’s ability to issue capital “speedily and efficiently”, participate in private placements, and manage mutual funds represents a systemic risk.

We’ll leave it to readers to determine the extent to which any of that is an accurate portrayal of what would happen if big banks were unable to obtain waivers, but rest assured the waivers will be obtained as the following from Reuters makes abundantly clear:

Banks want assurances from U.S. regulators that they will not be barred from certain businesses before agreeing to plead guilty to criminal charges over the manipulation of foreign exchange rates, causing a delay in multibillion-dollar settlements, people familiar with the matter said…

The banks are also scrambling to line up exemptions or waivers from the Securities and Exchanges Commission and other federal regulators because criminal pleas trigger consequences such as removing the ability to manage retirement plans or raise capital easily…

Negotiating some of the waivers among the SEC's five commissioners could prove challenging because many of these banks have broken criminal or civil laws in the past that triggered the need for waivers.

Many of the banks want an SEC waiver to continue operating as "well-known seasoned issuers" so they can sell stocks and debt efficiently, people familiar with the matter said. Such a designation allows public companies to bypass SEC approval and raise capital "off the shelf" - a process that is speedier and more convenient.

Several of the people said another waiver being sought by some banks is the ability to retain a safe harbor that shields them from class action lawsuits when they make forward-looking statements.

The banks involved are also seeking waivers that will allow them to continue operating in the mutual fund business, sources said.

The plea deals could be announced as soon as next week, two of the people said, adding that not all the penalties had been finalized yet.

Peter Carr, a spokesman for the U.S. Justice Department, declined comment on the timing or reason for a possible delay of any agreements. Citi, JPMorgan, RBS and UBS did not respond to requests for comment. A Barclays spokesman declined to comment.

Note that the original version of this story said that plea deals could be announced as soon as ... well, as soon as two days ago, but just as we predicted, none of the banks will enter guilty pleas without a guarantee from the government that no actual penalties (because monetary fines don’t count when you’ve got access to cheap Fed cash) will apply.

You can expect The Justice Department to cave to these demands in relatively short order because while we know that TBTF guilty pleas represent but a pyrrhic victory (at best) for a regulatory regime that fell asleep at the wheel and allowed Wall Street to run the entire financial system into the ground, there will be no shortage of fanfare and congratulatory handshakes when the DOJ ‘proves’ how very serious it is by sending a few TBTF logos (but no actual people) to prison.

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Nice vdeo

Not a conclusive evidence, but a step in a right direction

 

UBS Gets Probation For Rigging $5 Trillion-A-Day FX Market

UBS AG became the latest global bank to plead guilty to crimes in the U.S. and was slapped with $545 million in fines, after authorities probing the manipulation of foreign-exchange rates tore up a three-year-old immunity agreement with Switzerland’s biggest lender.

The fines for UBS are the first of what is expected to be a wave of settlements Wednesday between big banks and U.S. regulators over alleged manipulation of foreign-exchange markets.

Zurich-based UBS said it isn’t being charged as part of a broader foreign-exchange investigation, but that its conduct prompted the Justice Department to void a separate agreement struck in 2012 that spared the bank from charges related to manipulation of the London interbank offered rate, or Libor.

UBS will plead guilty to wire fraud and pay a fresh $203 million fine related to the Libor case. In addition, the bank will pay a $342 million penalty to the U.S. Federal Reserve, for “engaging in unsound business practices” related to its foreign-exchange business.

The Wall Street Journal previously reported that U.S. prosecutors took into account UBS’s promise not to break the law in its 2012 nonprosecution agreement for Libor, and believed misconduct by bank’s employees trading in foreign currencies violated those terms.

A Justice Department spokeswoman didn’t immediately respond to a request for comment.

Banks have sought to avoid criminal charges, which can add complications to their businesses. UBS rival Credit Suisse Group AG , pleaded guilty last year to a charge of aiding U.S. tax evasion by providing undeclared Swiss bank accounts to American clients. Credit Suisse has experienced some wrinkles in its U.S. businesses as a result of the plea, related to its ability to manage money for pension funds and to quickly raise capital.

French bank BNP Paribas SA pleaded guilty last year to dealings with sanctioned countries.

People familiar with the matter had previously been expecting UBS and other banks to settle the foreign exchange probes with the Justice Department last week. However, the banks need to apply for waivers from the U.S. Securities and Exchange Commission in light of their guilty pleas—which could help protect their businesses from related complications—contributed to pushing the respective resolutions back by one week.

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Wall Street gets slammed with $5.8 billion in fines for rate rigging

The fines are rolling in for Wall Street in connection with the 2008 LIBOR currency market and interest rate rigging scandal.

Six banks have agreed to pay a combined $5.8 billion in connection with the LIBOR scandal.

Five of them have pleaded guilty to criminal charges.

Citicorp, JPMorgan, Barclays, and RBS are pleading guilty to charges tied to forex manipulation, while UBS is pleading guilty to interest-rate manipulation charges.

They have each agreed to a three-year corporate probation period.

The London Interbank Offered Rate is a benchmark interest rate used around the world and calculated based on the interest rates set by all the major banks in London.

The scandal, which peaked in 2008, involved a handful of those banks allegedly fixing the rate by colluding and sharing information on what rates they would each set.

"ts just amazing how libor fixing can make you that much money," one RBS trader said in a chatroom, according to a CFTC transcript. "Pure manipulation going on," said another.

Attorney General Lorretta Lynch announced the resolutions on Wednesday.

"This Department of Justice intends to vigorously prosecute all those who tilt the economic system in their favor; who subvert our marketplaces; and who enrich themselves at the expense of American consumers," she said.

Here are the details, bank by bank:

UBS

In 2012, UBS fessed up first and cooperated with a DOJ investigation in order to avoid criminal charges in connection with currency rigging.

Total fines: $545 million
$203 million criminal fine to the DOJ in connection to LIBOR rate rigging

$342 to the Federal Reserve in connection with its forex investigation (no criminal charges)

Barclays

Total fines: $2.4 billion

Eight additional employees fired for their roles in forex manipulation

Fine breakdown:
$650 million criminal fine to the DOJ, plus an additional $60 million fine for violating a non-prosecution agreement. So $710 million to the DOJ total.

$342 million to the Federal Reserve in connection with its forex investigation

£284 million (about $443 million) to the UK’s Financial Conduct Authority

$485 million to the New York State Department of Financial Services

$400 million to the CFTC

“If you aint cheating, you aint trying,” one Barclays employee reportedly said, according to the NY Department of Financial Services.

Citi

Fines:
$925 million criminal fine to the DOJ

$342 million to the Federal Reserve in connection with its forex investigation

JPMorgan

Fines:
$550 million criminal fine to the DOJ

$342 million to the Federal Reserve in connection with its forex investigation

Royal Bank of Scotland

Fines:
$395 million criminal fine to the DOJ

$274 million to the Federal Reserve in connection with its forex investigation

Bank of America

Fines:
$205 million civil monetary penalty to the Federal Reserve

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JPMorgan Officially Apologizes For Being A Criminal Market Manipulator

MAY 20, 2015 DISCLOSURE NOTICE

The purpose of this notice is to disclose certain practices of JPMorgan Chase & Co. and its affiliates (together, “JPMorgan Chase” or the “Firm”) when it acted as a dealer, on a principal basis, in the spot foreign exchange (“FX”) markets. We want to ensure that there are no ambiguities or misunderstandings regarding those practices.

To begin, conduct by certain individuals has fallen short of the Firm’s expectations. The conduct underlying the criminal antitrust charge by the Department of Justice is unacceptable. Moreover, as described in our November 2014 settlement with the U.K. Financial Conduct Authority relating to our spot FX business, in certain instances during the period 2008 to 2013, certain employees intentionally disclosed information relating to the identity of clients or the nature of clients’ activities to third parties in order to generate revenue for the Firm. This also was contrary to the Firm’s policies, unacceptable, and wrong.The Firm does not tolerate such conduct and already has committed significant resources in strengthening its controls surrounding our FX business.

The Firm has engaged in other practices on occasion, including:

  • We added markup to price quotes using hand signals and/or other internal arrangements or communications. Specifically, when obtaining price quotes for bids or offers from the Firm, certain clients requested to be placed on open telephone lines, meaning the client could hear pricing not only from a salesperson, but also from the trader who would be executing the client’s order. In certain instances, certain of our salespeople used hand signals to indicate to the trader to add markup to the price being quoted to the client on the open telephone line, so as to avoid informing the client listening on the phone of the markup and/or the amount of the markup. For example, prior to agreement between the client and the Firm to transact for the purchase of €100, a salesperson would, in certain instances, indicate with hand signals that the trader should add two pips of markup in providing a specific price to the client (e.g., a EURUSD rate of 1.1202, rather than 1.1200) in order to earn the Firm markup in connection with the prospective transaction.
  • We have, without informing clients, worked limit orders at levels (i.e., prices) better than the limit order price so that we would earn a spread or markup in connection with our execution of such orders. This practice could have impacted clients in the following ways: (1) clients’ limit orders would be filled at a time later than when the Firm could have obtained currency in the market at the limit orders’ prices, and (2) clients’ limit orders would not be filled at all, even though the Firm had or could have obtained currency in the market at the limit orders’ prices. For example, if we accepted an order to purchase €100 at a limit of 1.1200 EURUSD, we might choose to try to purchase the currency at a EURUSD rate of 1.1199 or better so that, when we sought in turn to fill the client’s order at the order price (i.e., 1.1200), we would make a spread or markup of 1 pip or better on the transaction. If the Firm were unable to obtain the currency at the 1.1199 price, the clients’ order may not be filled as a result of our choice to make this spread or markup.
  • We made decisions not to fill clients’ limit orders at all, or to fill them only in part, in order to profit from a spread or markup in connection with our execution of such orders.For example, if we accepted a limit order to purchase €100 at a EURUSD rate of 1.1200, we would in certain instances only partially fill the order (e.g., €70) even when we had obtained (or might have been able to obtain) the full €100 at a EURUSD rate of 1.1200 or better in the marketplace. We did so because of other anticipated client demand, liquidity, a decision by the Firm to keep inventory at a more advantageous price to the Firm, or for other reasons. In doing so, we did not inform our clients as to our reasons for not filling the entirety of their orders.

* * *

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Is that Jamies daughter that wrote that pamphlet?

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