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Opaque forex market?

 

The world faces another mammoth forex scandal; do we have a global regulator yet?
AMIR HOSSAIN | Issue Dated: December 1, 2013, New Delhi
Tags : US Treasury Department | J P Morgan | HSBC | Barclays |
 

The US Treasury Department confidently claimed in November 2012 that “the market for foreign exchange transactions is one of the most transparent and liquid global trading markets.” It further added that “existing practices already help limit risk and also ensure that the market functions effectively.” But the reality says reverse. Some of the biggest banks of the world like J P Morgan, HSBC and Barclays are under scrutiny by British authorities due to possible involvement in manipulation of foreign exchange markets. The Financial Times reported on Nov 13, 2013 that 15 banks, from Citigroup to UBS, have been requested by British regulators to cooperate in the process of investigation. Is this the start of uncovering another big financial scandal in the world?

 

There's no guarantee against this possibility; as the global financial world has created benchmarks in how to destroy the global economy in one quarter. The world is yet to completely recover from the downturn that started in 2007-08 due to the financial liquidity crisis and the bursting of the US housing bubble. In the meanwhile, one also witnessed the Libor (London Interbank Offered Rate) scandal which was a series of fraudulent actions connected to the Libor in 2012. Regulators unearthed the fact that traders submitted falsified rates in order to advantage from their trades. Several statements by Barclays Bank exposed the fraud and manipulation attempted by member banks connected to the rate submissions, which significantly exacerbated the effects of the scandal. One would remember that UBS even paid $1.5 billion as settlement charges during this period.

 

Therefore, following the Libor scandal, the current smell of a foreign exchange market scandal seems all too pervasive across the world. Global authorities like the European Commission, Switzerland’s markets regulator Finma and the country’s competition authority Weko, UK’s Financial Services Authority, the Department of Justice in the US and the Hong Kong Monetary Authority are all investigating strong allegations that the $5.3 trillion per day currency market has seen considerable insider trading and information sharing. Unfortunately, the biggest global financial market operates without any global regulator. In other words, as put once by Richard Lyons, Dean of UC Berkeley’s Haas School of Business, “National regulators have oversight over national markets, but this has been a global market forever.” The biggest issue when one considers the foreign exchange market is that the quotes, and the biggest of deals are often finally done by only a relatively limited and specific group of people, and these people can destroy global economies as easily as they make or break billions of dollars in singular transactions. The need of the day is the setting up of a global financial regulator – aka the UN – which could oversee and regulate international financial operations. Till that is done, there is no saying when will the next global financial market collapse be? Or is it happening already?

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Issue Dated: Feb 5, 2017