The subject matter has been written to death.
But I will have my say, adding a few of my stories that will never come to light but for here. The facts are questionable and will never stand up to scrutiny and I tell them with my personal conspiracy theories thrown in.
The Ones Who Got Away ….
There was once a group of traders who profited heavily from sharing information on a central bank’s intervention in the forex market and pre-empted the trades from their personal trading accounts.
It sparked an industry witch hunt behind closed doors and out of media coverage from which their respective banks were given the discretion to their choice of disciplinary action.
Verdict : An industry clean up on personal trading accounts that affected the rest of the market. The culprits mostly got away with resignations and, of course, barred from work in the financial sector which we are unsure to what extent because another case of fraud back in the early 2000’s with a trader defrauding the bank (not the central bank) saw the trader back at work in another bank albeit in a slightly different front office capacity.
The Ones Who Kept It Together …
During a global bond meltdown, as unreal as it may sound to the new breed of post Lehman traders, a bunch of traders in a less developed jurisdiction saw the horror inflicted on Singapore market prices which tumbled in a massive (up to 18%) correction for the 10 year government bonds within a short span of 4 months. They got together and created a semblance of market calm with no market transactions leading to no panic sell down whilst prices slowly adjusted lower, to the relief of market participants.
Verdict : Created a controlled environment for the sell off which did not feed on frenzy and resulted in less losses as fewer stop losses were triggered.
The One Who Changed The Market …
In the early days of the Singapore market, volumes were light and few people knew what they were doing except that it was an obligation of primary dealers to make prices for every single government bond that exist to each other and to clients. Singapore remains the only country in the world with that obligation until today.
Thus clients with big enough muscle power were able to bulldoze prices to their advantage especially when there were few avenues for banks to be short bonds.
A particular client, nicknamed Big Mac, was ingenious enough to create a massive market short but buying up a huge chunk of the free market float of an issue to cause market mayhem in short covering and selling off quickly at a handsome profit. The joke was that he did not even settle for the bonds because he did them for forward settle.
Over the years, his strategy has been replicated often and frequently by large trading banks, usually those with decent balance sheets.
Verdict : Banks wised up to pricing forward settled deals. The market is usually more forgiving of a short squeeze leading to a wild rally than sell off.
Necessary evil ?
I have witnessed big enough deal sizes to move markets especially in Asian hours even for the most liquid market instruments as customers grow too big to fail with AUMs’ bigger than many economies out there. And the truth is that one bank will just sell to another and another, leading to a happy merry go round. Afterall 99% of the volume these days does not pertain to actual trade and demand.
Whose fault is it ?
Global clients and global banks present an image of market order to satisfy regulators because even if all systems are electronic, there are still people who can see the order books some where. Where and when does the witch hunt start ? Shall it go back to the 70’s and 80’s when the global markets came about ? Or are those who have left absolved of blame because nobody would lodge a complaint ?
And shall the salespeople take a part of the blame for client deals because they would be party to the transactions and in some cases, take a hefty slice of profits for themselves too ? In other cases, salespeople take spreads over the transacted price which is not illegal although Dodd Frank is making that process transparent for US banks.
With new rules in place banning chatrooms and fines meted out, we like to think the entire fiasco is over when perhaps it has just begun. Because it has just renewed the license to kill in a different playing field and consortiums move on to new tools on new technology.
For as long as the bottom line is profits and profit sharing, there will always be that eternal struggle of the human soul.