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Forex scandal: How to rig the market By Sebastian ChrispinBusiness reporter, BBC News  12 November 2014  From the sectionBusiness Big Banking  HSBC accused of incompetence by MPs  Barclays 'misleading shareholders'  Board of bank giant foregoes bonuses  Barclays annual profits fall 21% The foreign exchange market is not easy to manipulate. But it is still possible for trade
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  Forex scandal: How to rig the market   By Sebastian ChrispinBusiness reporter, BBC News      12 November 2014    From the sectionBusiness  Big Banking    HSBC accused of incompetence by MPs    Barclays 'misleading shareholders'    Board of bank giant foregoes bonuses    Barclays annual profits fall 21% The foreign exchange market is not easy to manipulate. But it is still possible for traders to change the value of a currency in order to make a profit. As it is a 24-hour market, it is not easy to see how much the market is worth on a given day. Institutions find it useful to take a snapshot of how much is being bought and sold. This happens every day in the 30 seconds before and after 16:00 in London and the result is known as the 4pm fix, or just the fix. The fix is very important, as it is the peg on which many other financial markets depend. So how do you make currency prices change in the way you want?    Traders can affect market prices by submitting a rush of orders during the window when the fix is set. This can skew the market's impression of supply and demand, so changing the price.    This might be where traders obtain confidential information about something that is about to happen and could change prices. For example, some traders shared internal information about their clients' orders and trading positions. The traders could then place their own orders or sales in order to profit from the subsequent movement in prices. This can relate to the 4pm fix, with a trader placing a trade before 4pm because he knows something will happen at around 4pm.    It is easier to move prices if several market participants work together. By agreeing to place orders at a certain time or sharing confidential information, it is possible to move prices more sharply. That could result in traders making more profits. Collusion can be active , with traders speaking to each other on the phone or on internet chatrooms. It can also be implicit , where traders don't need to speak to each other but are still aware of what other people in the market are planning to do. 'Hooray nice teamwork' The UK's financial watchdog, the Financial Conduct Authority (FCA) gave some examples of how traders at banks calling themselves names such as the players , the 3 musketeers , 1 team, 1 dream and the A-team attempted to manipulate foreign exchange markets. In one example, it said traders at HSBC had colluded with traders from at least three other firms to attempt to drive the fix for the sterling-dollar rate lower. It said traders had shared confidential information about client orders prior to the fix, and then used this information to attempt to manipulate the fix downwards. The sterling/dollar exchange rate fix fell from £1.6044 to £1.6009 in this particular example, making HSBC a $162,000 profit.
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