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The String of Currency Management Lawsuits Continues

Ningjing Liu

Another Case of Rigging Foreign Currency Trades Plays Out in Court
In a case that started about a week ago, the most recent in a string of lawsuits related to sell-side management of currency hedging is playing out. The rigging of another foreign currency trade may make another banker a felon. These lawsuits, many large, public and successful, continue because of inherent problems in the market structure where buy-side banks depend on sell-side banks for sourcing their currency requirements. This might not happen so often were it not for the limited options asset managers have to manage currency risk.

In July of 2016, HSBC’s head of global foreign exchange (FX) cash trading, Mark Johnson, was arrested at Kennedy Airport on charges of wire fraud tied to a $3.5bn FX transaction in 2011. According to the DOJ, the traders put their own and company interests ahead of the trust and confidentiality owed to their client, and in doing so, defrauded their client of millions of dollars. When questioned by their (not named) client about the higher price paid for their significant transaction, the defendants attempted to conceal the truth and divert attention away from their fraudulent trades.

And a Not So Happy New Year…
While these cases have been playing out in the last 5 years, what distinguishes this case is the degree of egregiousness and the overall attitude of the trader involved. According to reporting on the subject,

“Johnson himself said the order was like “f***ing Christmas” in internal communications.”

Johnson has also used as his primary excuse that the behavior he exhibited is rampant in the industry.

Buy Side Banks Need Options, and WiseRisk Delivers
While asset managers can take consolation in the success of the lawsuits, wouldn’t it be better if currency risks were addressed in a way that did not depend on the better nature of sell-side traders? Our CEO addresses these exact issues in our recent webinar, Masters Series: Rohanna Wise on her book, Hedging Wisely. She created WiseRisk in order to offer just such an option.

We built cost-effective technology that enables customers to focus on their core value proposition without becoming or hiring currency experts, nor compromising on the quality of their currency exposure management, either by managing risk with lesser tools or outsourcing to the sell side.

We wish you happier holidays this year.