Is it possible to manipulate the largest market in the world, that being, the foreign exchange market?
Well, if it is possible to manipulate the setting of overnight interest rates (i.e Libor et al) impacting trillions of dollars of derivative contracts and the pricing of equities (i.e. via high frequency trading), we should not be surprised that those on Wall Street are also able to manipulate prices within the foreign exchange markets . . . . and have been doing so for a long time.
In what might only be defined as another nail in the coffin of free and fair markets, Bloomberg exposes the stench of this manipulative activity.
Let’s navigate and review Traders Said To Rig Currency Rates to Profit Off Clients,
Traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice.
Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years.
How does this happen?
In a market dominated by a mere handful of firms the oligopolistic practices of collusive price setting (i.e manipulation) and the unequal sharing of information reign supreme. These practices are elevated even further when regulators — and their political friends as well — are in bed with the industry.
Without addressing the core premise of regulatory capture as the outgrowth of the crony and corruptible relationship between Wall Street and Washington, this manipulative activity will never end but will simply find other means and markets to express itself.
Consumers, investors, and taxpayers may unknowingly continue to suffer as Uncle Sam’s rent-seeking market and economy gains a stronger foothold BUT trust and confidence in America will continue to wane.