In wake of the evolving probe into FX dealers alleged manipulation of Foreign exchange markets that has been on-going since FINMA first announced its commencement of the investigation in Switzerland and across borders – via cooperation with foreign regulators, UBS Investment Bank has joined the recent dealer-driven crackdown in banning its staff access to multi-dealer chat rooms, according to reports in the media about a memo sent to UBS staff from its management yesterday.
According to the internal memo to staff, the bank’s executive committee informed employees that, “All social related chat rooms are prohibited and must be closed immediately,” and specified that,“Multibank and dealer chat rooms” are also banned, but that specific exceptions “for business critical use only,” would need approval by the executive committee member and compliance officer responsible for the specific business, according to the memo as confirmed by Bloomberg with a UBS spokesperson who reportedly concurred with the validity of the memo contents.
The banning of staff from social-chat rooms and dealer-chat rooms follows recent crack-downs from Barclays, Royal Bank of Scotland (RBS) and Citigroup, in wake of the ongoing Forex probe in recent weeks narrowing in on such chats and alleged collusion tied to rate manipulation.
What’s the Future of Multi-Dealer Chats?
According to Forex Magnates’ research it doesn’t appear that measures such as banning access to social-chat rooms alone would be sufficient to curb potential collusion, as the issue is that multiple dealers across different brokerages can still communicate via other methods not limited to internet chats.
Such collaborative calculations could still take place via phone, email, or other mediums for meeting/talking together – although the timing aspect appears to be critical as the speed of the markets dictates the need to move quickly on information, whether it be genuine or as part of a cohortative approach (therefore internet/voice offers the fastest means – in addition to any other forms of electronic methods).
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While banning certain staff from such multi-dealer chats could be preventative from a compliance risk standpoint of having an audit trail of potentially un-monitored communications that could implicate company staff in any subsequent probes (such as that of recently mentioned), it’s important to remember how such communications also serve a pivotal role in inter-dealer transactions or market making and voice broking transactions as the need to speak to others in order to gauge consensus among trusted parties and clients is a critical part of the markets function.
Transparency Evolving, Communication Terminals Hover on Compliance
According to the latest Bank for International Settlements’ (BIS) Triennial survey of Foreign Exchange markets, some of the major changes in the last 3 years are that execution methods have been clarified to disentangle methods from counter parties, and to distinguish more clearly between electronic and voice execution.
For the first time, during the 2013 BIS Triennial survey, reporting dealers were requested to identify how much of their total turnover for each instrument and currency pair was attributed to: (i) transactions conducted in a foreign exchange prime brokerage relationship (with the reporting dealer in the role of FX prime broker; and (ii) transactions that are directly or indirectly generated by retail investors.
There still exists considerable vested interest into terminals such as those provided by Bloomberg, Thomson Reuters that are widely used in Forex Exchange, and other recent entrants into the terminals-messaging segment which aim to provide traders and staff with access to information, and as a means to discern vast amounts of data rapidly and meaningfully – including communications. Technologies like these are expected to be something that firms will continue to adopt to aid with business and market efficiency, and is not likely to go away any time soon.
Nonetheless, as the probe into alleged foreign exchange price manipulation continues with aspects of the investigation focused on chat room groups such as “The Cartel” that had been previously uncovered, and the wide scope across dealers internationally, efforts to curb such operational risk for dealers posed by unscrupulous staff may be a short term solution before a longer-term fix can be applied to prevent any such alleged collusion to manipulate rates and benchmarks across asset classes – including upcoming regulations that may result from these concerns coming under the spot light.