Should You Be Worried About Forex Market Manipulation?

Unless you’ve been living under a rock, you’d know that five global banks have recently been fined for forex market manipulation. Has the game really been rigged all this time?

As it turns out, traders working at Citigroup, J.P. Morgan Chase & Co., Barclays, UBS AG, and Royal Bank of Scotland (collectively known as “The Cartel”) admitted that they conspired to manipulate benchmark exchange rates in order to bump up their profits. Apparently, they’ve used coded language in an exclusive chatroom to let each other in on the mark-ups for forex transactions, creating what the FBI dubbed as criminality on a massive scale.

forex fraudHere are some quotable quotes from the transcript of the chatroom conversations released by the New York Department of Financial Services:

“If you ain’t cheating, you ain’t trying.”

“If u bigger, he will step out of the way. We gonna help u.”

“Mess this up and sleep with one eye open at night.”

“Coz I know how it is, go handle your biz and make that money, money, money…”

Just kidding about that last one, that’s a line from “I Don’t Mind” by Usher and Juicy J. But with this kind of misconduct going on right under the financial regulators’ noses for more than five years from December 2007 to January 2013, surely one can’t help but mind if the authorities are imposing the proper penalties and putting stricter rules in place.

For now, the U.S. Justice Department hasn’t announced any charges on particular individuals involved in the scandal since the investigation is still ongoing. To make things easier, they should probably check which traders have “Greed is good” or the face of Gordon Gekko tattooed on their backs. In any case, the banks involved have already agreed to pay a combined $5.6 billion in penalties, which would put a jaw-dropping dent… on their lunch money.

To put things in perspective, top global banks have been able to pay more than $60 billion in fines over the past two years as settlement for allegations of financial fraud. J.P. Morgan and Citigroup are the largest and third largest banks in the U.S. based on assets, which means that they profit from a hefty chunk of the $5.3 TRILLION a day trading volumes in the forex market.

Financial industry analysts say that the bigger dent to these banks is on their reputation, as these institutions might have a tough time restoring trust in their business operations. Some of the banks are even set to pay additional penalties for also manipulating other benchmark rates, namely as the LIBOR and the ISDAfix, which is used setting payout rates on pensions and determining the cost of real estate loans.

Others say that these market manipulations shouldn’t really be a cause of concern for retail forex traders since the rate changes were small enough to go unnoticed for years anyway. Do you think this is the case or should we stay wary of any shady conspiracies among these top banks?