A Trader's Perspective

Stephonomics: Bank Fines – Do They Matter and Who Do They Affect?

Electronic trading accounted for 72% of all currency transactions in 2014 as opposed to 20% in 2001.

Deutsche Bank was fined a record 2.5 billion dollars by British and U.S. authorities as its London subsidiary will plead guilty of wire fraud for its part in the manipulating of global interest rates.

The case spotlighted the collusive elements of Wall Street trading desks, where rival banks have occasionally joined forces to manipulate financial benchmarks. It also foreshadows looming actions against banks suspected of joining forces to manipulate the price of foreign currencies with the justice department planning to announce guilty pleas from at least four banks.

As the market continues to see these fines more often, banks are continuing the move toward making traders extinct and replacing them with computer platforms. Electronic trading accounted for 72% of all currency transactions in 2014, as opposed to 20% in 2001.

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Experts predict that 81% of spot trading will be carried out electronically in 2018. My thoughts are that although the fines levied are indeed a lot of money, I do not think they make an impact on the banks. The end result is the traders are the ones that suffer. It is just plain wrong to replace traders because a few of them have erred.

An example of how we think the fines are irrelevant can be seen in two very similar headlines: “UK’s Biggest Banks face Another 19 Billion Pound (29 billion dollars) Fine” and “GBP Trades at New Highs.”

Let’s also remember that while a 2.5 billion euro fine seems huge, to a bank with a 1.8 trillion euro balance sheet that is merely a percentage of 0.138 %. Translate that for us regular Joes: if you have a hundred dollars in your pocket that fine would be 14 cents.

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