Forex rate rigging

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Utilitarianism argues the morality of any action only depends on the consequences, rather than the intentions, of the action. Furthermore, the value of these consequences are evaluated based on the pleasures and pains they cause, and the moral rightness depends on the total net good in the consequences to all people.

Case Study: JPMorgan JPMorgan is among the four banks that pleaded guilty to the charges of rigging the fix rates of the foreign exchange market to reap a profit. Instead, the FCA gives detailed examples of how traders at JPMorgan attempted to manipulate the exchange rates for their own financial profit.

The following case, interpreted from the chat room histories revealed by investigators, demonstrates an attempt by a senior trader to manipulate the p. In a chatroom conversation, it offers to transfer this order to Firm A. The FCA said these trades were designed to take advantage of the expected upwards movement in the fix rate following the discussions within the chatroom.

Between them they accounted for 41 per cent of the euro-dollar trade. For these financial giants, however, this is a rather small sum to be added to the overall earnings of a behemoth bank. More importantly, these profits made by traders over the years of manipulation do not go directly to their salaries. The main motivation for these traders to manipulate the rates was actually to boost end-of-year bonuses awarded for being a part of a team that consistently made higher profits. JPMorgan and Citibank were fined the heaviest, proportional to the extent of their involvement in the manipulations.

The consequences of the forex rate manipulation on other people are slightly more complex. Firstly, these banks were able to drive the exchange rate for two currencies down or up to make a profit, but the price movements from the manipulation are so small holidaymakers are unlikely to notice a big difference when buying foreign currency. An additional negative consequence is the loss of trust in the financial system by the general public. Sadly, these riggings occurred after banks had pledged to clean up their actions after the Libor rigging scandal, when banks were found to have falsely inflated or deflated their rates to profit from trades just two years prior, in According to utilitarianism, their actions caused a lot more negative consequences both for the bankers directly involved, and for everyone else in the global economy, and is therefore unethical.

In this situation, although the amount of profits made by the bankers would be comparatively equal to the financial loss of the greater population. Utilitarianism theory asserts that moral righteousness depends on the consequences for all people and sentient beings.

The fact that a great number of people suffered negative financial consequences for the benefits of the few means the net good for all people has been reduced, and the action is not ethical. What now? The lesson here is that the conduct of a small group of employees, or of even a single employee, can reflect badly on all of us.

The exchange rate at p. Since the trader now has a short euro, long dollar position, it is in their interest to ensure that the euro moves lower, so that they can close out their short position at a cheaper price and pocket the difference. They therefore spreads the word among other traders that they have a large client order to sell euros, the implication being that they will be attempting to force the euro lower.

At 30 seconds to 4 p. The trader closes out their trading position by buying back euros at 1. The U. The rationale for this permissiveness is based on the size of the forex markets, to wit, that it is so large that it is nearly impossible for a trader or group of traders to move currency rates in a desired direction.

But what the authorities frown upon is collusion and obvious price manipulation. If the trader does not resort to collusion, they do run some risks when initiating their million short euro position, specifically the likelihood that the euro may spike in the 15 minutes left before the 4 p.

Asleep at the switch The forex scandal, coming as it does just a couple of years after the huge Libor -fixing disgrace, has led to heightened concern that regulatory authorities have been caught asleep at the switch yet again.

The Libor-fixing scandal was unearthed after some journalists detected unusual similarities in the rates supplied by banks during the financial crisis. The forex benchmark rate issue first came into the spotlight in June , after Bloomberg News reported suspicious price surges around the 4 p.

Bloomberg journalists analyzed data over a two-year period and discovered that on the last trading day of the month, a sudden surge of at least 0. While this phenomenon was observed for 14 currency pairs, the anomaly occurred about half the time for the most common currency pairs like the euro-dollar.

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Nearly 1, plaintiffs, including many mutual funds and Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments. Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading.

Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectively relevant with real-time pricing. Depending upon where you reside, an exchange may be referred to as a bourse or a share exchange while, as a whole, exchanges are present within the majority of countries. Who is Listed on an Exchange?

As trading continues to transition more to electronic exchanges, transactions become more dispersed through varying exchanges. This in turn has caused a surge in the implementation of trading algorithms and high-frequency trading applications. In order for a company to be listed on a stock exchange for example, a company must divulge information such as minimum capital requirements, audited earnings reports, and financial reports.

Not all exchanges are created equally, with some outperforming other exchanges significantly. Outside of trading, a stock exchange may be used by companies aiming to raise capital, this is most commonly seen in the form of initial public offerings IPOs.

Swiss bank UBS was exempted from a million euro fine since it alerted the existence of two cartels to the European Commission. The financial industry has been hit with billion euro fines worldwide in the last decade for rigging key benchmarks.

Foreign exchange spot trading activities are one of the largest markets in the world, worth billions of euros every day," EU Commissioner Margrethe Vestager said in a press release Thursday. Morgan and MUFG Bank and these cartel decisions send a clear message that the Commission will not tolerate collusive behavior in any sector of the financial markets. The behavior of these banks undermined the integrity of the sector at the expense of the European economy and consumers," Vestager added.

The EU investigation that has been ongoing for the past six years revealed that some individual traders from various banks in charge of forex trading — a form of trading executed on an intra-day basis — exchanged sensitive information and trading plans through various online professional chat rooms.