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Screenshot of a breaking news alert e-mail from Q2 2017
It was almost seventy years ago that George Orwell painted a dystopian view of what he termed “Airstrip One,” the fictional city which was intended to project London’s condition in the future, where automatons go about their daily activities whilst being subject to strict surveillance by a solid-state electronic government and ostricism from each other.
Whilst many of predictions which were predicted in the famous publication “Nineteen-Eighty-Four” have indeed come to pass, thirty years later than George Orwell’s predicted date, the powers that be are still busily engaged in emulating the actions of the Outer Circle.
This week it has emerged that major banks which play an instrumental part in contributing to worldwide FX order flow are considering isolating traders which execute fix orders from their colleagues in order to prevent manipulation of benchmarks.
Several banks, according to a report by FXWeek, are assessing the possibility of establishing totally sealed trading rooms in which employees charged with the responsibility of executing orders would be located at isoleted desks, totally seperate from other members of spot trading teams, with no access to the bank’s order book during the fix window, and subject to the monitoring of their activities.
“The idea behind sealed rooms is to cut off a trader from any information relating to the other positions held by the rest of the spot desk during the fix, so there is no temptation or ability to manipulate the process in favour of the bank,” a senior trader at one bank that is considering the policy explained to FXWeek.
This proposed methodology is on the agenda for discussion at the forthciming G-20 leaders’ summit in Brisbane, Australia in November, and has been suggested for implementation by the Financial Stability Board, which is an international body that monitors and makes recommendations about the global financial system across all of the G20 nations.
Whilst this proposal applies on an international basis, the majority of the affected will be in London should it go ahead, due to the lion’s share of FX order flow taking place between Barclays, HSBC, JP MorganChase’s British operations and Citi’s London office. as well as the UK division of European contenders Deutsche Bank and UBS.
Many senior traders within FX desks have fallen casualty to the ongoing probe into alleged FX benchmark manipulation since the case was opened by global regulators and law enforcement agencies over a year and a half ago. So far, no prosecutions have been made, but provision has been made for settlement by certain large banks, in addition to the culling of FX trading executives.
Should the plan be implemented, there is no guarantee of successful outcome, but every possibility of the working environment for traders becoming considerably less welcoming.