Traders backed by a massive armoury

Foreign exchange traders at Barclays employed various strategies to manipulate the fixes.

One was known as “building ammo”. A trader would amass a large position in a currency and then unload it just before or during the fix to try to move prices.

The New York State department of financial services consent order details how, on September 13 2012, a Barclays trader had a net position to sell €119-million on behalf of clients, but he had built up about €30-million in additional “ammo” from Fortis Bank and €169.5-million from HSBC. The trader stood to make an additional profit if the European Central Bank (ECB) fix dropped.

He sold €175.4-million in the nine minutes leading up to the fix. Five seconds before the fix, the best offers were hovering around 1.2913 and the market was rising. He then sold €147-million in the last three seconds, with the fix ultimately being set at 1.2910. As a result, Barclays made a profit of $16 000 on these trades.

In another example of manipulative trading, which was intended to push prices down before the fix, on January 3 2012, a Barclays trader repeatedly placed orders below the levels of the bids in the market. For this fix, Barclays had client orders that required it to sell €400-million. It also obtained additional “ammo” from other banks, raising its net position for sale to €482-million. In the seconds before the fix, the Barclays trader submitted an order to sell €50-million at 1.3013 when the market was trading at 1.3015/16, and then to sell €100-million at 1.3012 when the market was trading at 1.3014/15.

The department of financial services said a trader not intent on driving prices lower would simply have submitted orders that matched the best offer or, more aggressively, obtained immediate execution by agreeing to sell at the bid price.

“Offers lower than the guaranteed execution at a higher available bid are strongly probative of an intent to move prices lower, rather than efficiently and fairly execute orders,” according to the consent order. “On this day, Barclays obtained approximately $59 000 in profit from the fix trading.”

A tactic used to reduce the risks of actively manipulating market prices was for the traders to agree to stay out of each other’s way around the time of a fix and to avoid executing contrary orders while an effort to manipulate prices was taking place.

Traders also co-operated to manipulate prices by seeking to “clear the decks” early of contrary orders to prevent diluting the deployment of the full “ammo” nearer to the fix. This was done in an effort to move prices out of a narrower range that would be maintained by a more routine, even execution of orders.

For example, in a June 28 2011 chat with a trader from HSBC, a Barclays trader reported that another trader was building orders to execute at the fix contrary to HSBC’s orders, so Barclays assisted HSBC by executing trades before the fix to decrease the other trader’s orders. “He paid me for 186 . . . so shioud have giot rid of main buyer for u.”

On February 15 2012, a Barclays trader cleared the decks in advance of the ECB fix to assist his fellow Cartel member at UBS, stating “hopefully taking all the filth out for you … hopefully decks bit cleaner.”

The traders implicated in the US case were not juniors. According to the consent order, the misconduct was systemic and involved several levels of employees, and the culture in Barclays “valued increased profits with little regard to the integrity of the market”.

In May 2012, after noting that “large fixes are the key to making money as we have more chance of moving the market our way”, a Barclays senior trader announced an “added incentive” for sales employees of 50% of profits made for increasing trading volume at certain fix orders.

In response, the head of the forex spot desk in New York noted that “the ideas put forward in this mail are exactly what we are looking for”.


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