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Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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Speaker 1: day we bring you insight and analysis into the most

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Speaker 1: important legal news of the day. You can find more

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Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud

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Speaker 1: and on Bloomberg dot com slash podcasts. City Group was

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Speaker 1: hit the hardest of the five banks that agreed to

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Speaker 1: pay European Union find totaling one point two billion dollars

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Speaker 1: for colluding on foreign exchange trading strategies. Traders ran two

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Speaker 1: cartels on online chat rooms that recalled the Essex Express

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Speaker 1: and the Jimmy the Three Way Banana Split and semi

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Speaker 1: Grumpy Old Men Joining Me. A securities attorney David Bissinger,

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Speaker 1: a partner at Bissinger Ashman and Williams. Dave explain how

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Speaker 1: the traders worked and manipulated the benchmark foreign exchange rates

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Speaker 1: in these rather colorful chat rooms. Well, there's June three

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Speaker 1: basic strategy that I think illustrated first as good old

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Speaker 1: front running happens in the securities markets as well, and

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Speaker 1: that's when a trader is aware of the going price

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Speaker 1: and has his own or her own proprietary position and

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Speaker 1: at the same time as also obligated to sell for

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Speaker 1: a customer and sells the proprietary position first at the

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Speaker 1: customer's disadvantage. Say, for example, if I'm trying to sell

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Speaker 1: an eighty thousand dollar Tesla, you know, and I can

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Speaker 1: sell it at eighty five thousand, I sell mind first

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Speaker 1: before I sell my customers. By selling mine, that's going

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Speaker 1: to have a negative downward effect on the pricing. The

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Speaker 1: second strategy is called banging the clothes, and in the

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Speaker 1: foreign exchange market, the index was measured not by the

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Speaker 1: volume or the dollar amount, but by the volume of trades,

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Speaker 1: and so this strategy would be breaking up maybe one

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Speaker 1: trade into say fifty, and by doing it there were

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Speaker 1: a lot more trades as a certain price, which manipulated

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Speaker 1: the market. And then finally there was a strategy called

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Speaker 1: tainting the screen, and painting the screen is placing fake

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Speaker 1: orders in the market to perpetuate an illusory price, and

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Speaker 1: then the broker can sell his or her own proprietary positions.

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Speaker 1: There's other strategies, but those three are predominant in the

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Speaker 1: regulatory actions. So now the EU Commissioner, Margret Sayer, said,

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Speaker 1: these fines will send a message. While they're certainly large,

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Speaker 1: they're lower than the one point three billion euro penalty

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Speaker 1: for banks for rigging euro bar rates and below the

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Speaker 1: record three point eight billion euro penalty for collusion between

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Speaker 1: truck mayors. So how much of a message is it

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Speaker 1: really sending? Well, and that's a big economic question. It's

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Speaker 1: hard to measure. I think one way to evaluate it is,

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Speaker 1: you know, this is just the latest. As you mentioned,

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Speaker 1: you had the euro bar scandal, before, you had the

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Speaker 1: live Or scandal. Before that, You've had the same banks

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Speaker 1: involved in the credit crisis, You've had them in the

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Speaker 1: tech wreck and all sorts of other things. And at

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Speaker 1: a certain point one must ask, you know, what effect

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Speaker 1: are the regulators having a fit scandal after scandal? So

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Speaker 1: perhaps your question is raising a legitimate concern that these

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Speaker 1: are not severe enough. And one of the banks RBS

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Speaker 1: said that quote, this kind of behavior has no place

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Speaker 1: at the bank we are today. Our culture and controls

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Speaker 1: have changed fundamentally during the past ten years. Is that

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Speaker 1: true or is there room for something like this to

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Speaker 1: happen even today at these banks? Well, June, you have to,

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Speaker 1: I suppose take that spokesperson his or her award, But

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Speaker 1: you know, the real issues when you look at the

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Speaker 1: massive size of these banks, and for example, this scandal

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Speaker 1: itself in the four X market, the banks comprising the

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Speaker 1: global group that were sued both by regulators in the

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Speaker 1: U S and the EU and elsewhere, a market of

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Speaker 1: about five point three trillion dollar trades per day that

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Speaker 1: was just in the four X. Then you have all

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Speaker 1: of the other activities they have in any number of areas,

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Speaker 1: from securities underwriting to you know, bonds on issuance to

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Speaker 1: you know, like we had all the instruments during the

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Speaker 1: credit crisis. And so you look at the large reach

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Speaker 1: of these banks. Perhaps we don't have another four X scandal,

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Speaker 1: but it does seem to make you wonder if we'll

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Speaker 1: have to scandal somewhere else. So Dave I was trying

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Speaker 1: to go through the investigations that are pending. Let me

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Speaker 1: just go through a few and get your reaction. Here.

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Speaker 1: There's another investigation involving credit suites in this area, Another

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Speaker 1: inter suspected cartel for trading US dollar super sovereign and

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Speaker 1: agency bonds. Another looking at the trading of Eurozone sovereign

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Speaker 1: bonds and potential coordination and options trading in the FX market.

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Speaker 1: There are so many investigations. What does that say about

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Speaker 1: the way the banks are operating and the traders are operating. Well, again,

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Speaker 1: it's such an incredibly huge market. And so when you

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Speaker 1: look at just the release that we're talking about, you know,

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Speaker 1: the ease sites of variety of text messages and like

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Speaker 1: you say in the introduction, you've got the Essex Express

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Speaker 1: and so forth. But then you go back, Bloomberg ran

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Speaker 1: the first story I think apparently in June, you know,

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Speaker 1: and there was a whole host of other foreign exchange

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Speaker 1: you know, scandals as part of that that came out

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Speaker 1: through class actions, through the United States actions and so forth.

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Speaker 1: So it's hard to imagine regulators getting their hands around

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Speaker 1: everything because again it's just such a huge market. When

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Speaker 1: three British traders in a group known as the Cartel

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Speaker 1: were tried, they were actually acquitted by a federal court

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Speaker 1: last year of using a chat room to coordinate trades

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Speaker 1: and manipulate prices on the spot exchange rate for euros

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Speaker 1: and US dollars. What did they show that led the

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Speaker 1: jury to acquit them, if you know, well, you know,

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Speaker 1: I can't speak as to that particular instance, but I

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Speaker 1: think one of the problems that you see in a

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Speaker 1: lot of the allegations is that the regulators will you know,

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Speaker 1: try to insinuate wrongdoing because of the nicknames. For example,

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Speaker 1: the British pounds to the US dollar trade is called

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Speaker 1: the cable. The New Zealand dollar to the US dollar

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Speaker 1: is called the kiwi. They have enormous numbers of nicknames.

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Speaker 1: A lot of them are kind of a cockney flying.

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Speaker 1: They tend to make the traders look bad. And you know,

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Speaker 1: the traders are legitimately allowed in at least as they're

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Speaker 1: trading to communicate, and they're going to communicate often like

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Speaker 1: everybody else does these days, by text, and so a

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Speaker 1: lot of the texts are cryptic, a lot of them

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Speaker 1: involved trading and taking positions. And to convict, say, in

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Speaker 1: the criminal court you've got a show guilt beyond a

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Speaker 1: reasonable doubt, you typically would have the show intent and

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Speaker 1: a jury is going to wrestle with those issues. So

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Speaker 1: it's it's difficult in the criminal context, I think, particularly

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Speaker 1: to get convictions. Thanks Dave so much to have you on.

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Speaker 1: That's David Bissing, your partner at Bissing, your Ashman and Williams.

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Speaker 1: Thanks for listening to the Bloomberg Law podcast. You can

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Speaker 1: subscribe and listen to the show on Apple Podcasts, SoundCloud,

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Speaker 1: and on bloomberg dot com slash podcasts. I'm June Bralso

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Speaker 1: this is Bloomberg, but he doesn't du the Fay