Regulators hit five leading banks with FX manipulation fines of over $3bln


The US (CFTC), UK (Financial Conduct Authority) and Swiss (Finma) regulators delivered a concerted and coordinated attack on the manipulations that have dogged the FX market for too long. The three regulators have hit five top global FX banks with fines totally over $3bln, but there is certainly more to come.

The banks: Citi, HSBC, JPMorgan, RBS and UBS  (Barclays are negotiating their own settlement with regulators), are all accused of manipulating the FX benchmark fixings, front running client orders and collusion. The authorities have also released what amount to damning transcripts from private FX chat rooms that clearly show that traders at these banks were colluding and front running client orders.

CFTC has released transcripts from the private FX chat rooms used by the traders, whilst the UK FCA provides similar examples of manipulation including a number of videos with graphics explaining what went on in the chat rooms ahead of the fixings, below is a visual from the video Continue reading

Are FICC markets ‘effective and fair’?


The Fair and Effective Markets Review (FEMR) has today published a consultation document (available on the Bank of England website), on what needs to be done to reinforce confidence in the fairness and effectiveness of the Fixed Income, Currency and Commodities (FICC) markets.

The Review was established by the Chancellor in June 2014, to conduct a comprehensive and forward-looking assessment of the way wholesale financial markets operate, to help to restore trust in those markets in the wake of a number of recent high-profile abuses, and to influence the international debate on trading practices.

To have lasting impact, the Review intends to Continue reading

24 European Banks fail ‘Stress Tests’ – 9 of them Italian!


The European Banking Authority (EBA), has released the results of ‘Stress Tests’ on 123 banking entities in Europe. The tests were designed to test the resilience of banks to adverse economic conditions.

The stress tests are based on common macroeconomic scenarios and a consistent methodology and unparalleled transparency into banks’ balance sheets and the potential impact of severe but plausible shocks on them.

The impact of the stress test is assessed in terms of the CRD IV Common Equity Tier 1 ratio for which a 5.5% and 8.0% rate are defined for the adverse and the baseline scenario respectively.

Some 24 banks (20%) failed the tests, of which 9 were Italian.

Here is a list of failed banks:

Banks that failed Stress Tests

 Shortfall for individual banks 2016 under the adverse scenario, capital raised or converted in 2014 and net shortfall (EUR BN) 

Full report available here, and individual bank stress test results and interactive visual display tools here.

Are Europe and US moving closer to NDF clearing mandates?


Could clearing mandate for NDFs be closer that we think?

Europe has tended to lag the US by about 18 months in implementing regulatory reforms in general, and trading and clearing mandates in particular.

So, the timing this week of a new consultation paper by The European Securities and Markets Authority (ESMA) on mandatory clearing of swaps and Non-Deliverable Forwards (NDFs) is potentially significant, as it could suggest a more rapid convergence between Europe and US on NDF clearing mandates.

The reason for this is that the paper has been published barely a week before Continue reading

Fixing the Fix – final report from FSB


The Swiss based Financial Stability Board (FSB), has today published their final report and recommendations for Foreign Exchange Benchmarks, which follows an initial consultative report published in July.

The report sets out a number of recommendations for reform in the FX markets and in the benchmark rates that have been identified as pre-eminent by market participants – in particular, the WM/Reuters (WMR) 4pm London fix produced by the WM Company. These recommendations fall into the following broad categories:

  • the calculation methodology of the WMR benchmark rates;
  • recommendations from a review by the International Organization of Securities Commissions (IOSCO) of the WM fixes – this review is included in the report published today, and is also being published separately by IOSCO;
  • the publication of reference rates by central banks;
  • market infrastructure in relation to the execution of fix trades; and
  • the behavior of market participants around the time of the major FX benchmarks (primarily the WMR 4pm London fix).

Summary of recommendations Continue reading

New investment banking models: ‘capital-lite’, ‘agency’ and ‘client-clearing’


Regulation is driving change in capital market structure, and as highlighted in the future of investment banking, banks continue to move towards a ‘capital-lite’ business model, as they seek to ‘optimise’ use of and return on capital.

The introduction of mandatory trading and clearing for standardised swaps (SEFs in US and OTF and MTFs in Europe) has resulted in higher capital charges for OTC bilateral trades, and reduced the appetite of banks to warehouse and hold inventory which is moving more banks towards a ‘capital lite’ model.

This is the backdrop to the announcement that JP Morgan the setting up a 150 strong fixed income agency execution desk called JP Morgan Execution Services (JPMES), to run alongside its principal trading operations.

At first sight, it looks as if JP Morgan is simply hedging its bets and backing both agency and principal business models. However,
Continue reading

The future of Investment Banking (Oliver Wyman/Morgan Stanley)


What’s the outlook for Investment Banking in 2014 and beyond?

Well, according to a new report published by Oliver Wyman and Morgan Stanley, banks need to act fast and re-allocate capital and resources to optimise where they have real advantage, and focus regionally and domestically.

The report which includes results of client surveys suggests clients plan to ‘polarize’ their spend on partner banks and specialists in areas such as servicing multi-asset, whilst squeezing the rest.

This is a really fascinating report (link available at end of this post), well worth taking the time to read, some key takeaways from the report are:

Market under-estimates scope for wholesale banks to increase returns as they are forced to focus on business optimisation and resource allocations

Drivers being: Continue reading

Follow

Get every new post delivered to your Inbox.

Join 1,044 other followers