Alex Silverman and Roland Jeurissen were given responsibility for Morgan Stanley’s foreign exchange options business, Bloomberg reported. The move comes as the US bank is radically reshaping leadership at this desk amid internal probes into charges that its traders exaggerated the performance of the FX options.
Silverman and Jeurissen are replacing Thiago Melzer, a senior trader who was also running emerging-markets desk and macro trading in the Americas. He was fired in November amid allegations of mismarking securities to conceal losses of $140 million.
Melzer was identified alongside three other traders as part of an alleged scheme to make investors believe that the bank’s business linked to emerging-market currencies was doing much better.
The so-called mismarking presents an opportunity for fraud. It simply misleads investors and executives about how much their investments are worth, and thus mispresent performance while allowing traders to charge higher fees. The US regulators have aggressively targeted valuation or “mismarking” fraud in a number of indictments brought within the last few years.
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Morgan Stanley strengthens FX business
Motivated to overvalue their positions to conceal the estimated trading losses from Morgan Stanley, the scope of the probe mainly focuses on FX options, which give holders the right to buy or sell currencies at an agreed price and time. Options volumes surged to nearly $300 billion a day, according to the Bank for International Settlements’ latest survey, mirroring a pick-up in the spot market and reflecting strong trends in OTC sectors.
The bank’s FX options desk struggled last year. It lost about $100 million in the third quarter on the business linked to currencies in Central and Eastern Europe, the Middle East and Africa, and another $70 million in the final period, the report added.
Like other big banks, Morgan Stanley has been strengthening its foreign exchange desks, investing in people and technology. The focus on forex and flow business comes as investor appetite grows for such products after a market meltdown last year saw demand wane for riskier derivatives. Last year, the US investment bank made a $15 million investment in foreign exchange (FX) technology and trading platform provider, Integral.